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Biden’s tax rule would destroy billions of dollars from top fortunes to death

(Bloomberg) – Jeff Bezos has an ex-wife, girlfriend, four children and billions of reasons to see if Joe Biden’s tax overhaul wins congressional approval. The heirs of the founder of Amazon.com Inc. could have to pay more than $ 36 billion if the president succeeds in closing a loophole that helps the rich transfer their wealth tax-free upon death. Under current rules, anyone who inherits Amazon shares that Bezos has purchased in 1994 for $ 10,000, valued at $ 180 billion today, will receive a so-called base increase, wiping out any capital gains tax. Biden’s plan would close that loophole and immediately apply the highest capital gains tax when assets are transferred to wealthy heirs. If the rate increases – it’s 20% for farms like Bezos, and Biden has called for raising it to 39.6% – the possible tax bill would, too. For Bill and Melinda Gates, who announced on Monday that they would divorce, a change in the hardening rule might be less expensive. Gates’ fortune, valued at $ 145.8 billion, is older and they have already sold or donated much of their stake in Microsoft Corp. Congress estimates that strengthening the tax base for inherited assets costs the government about $ 43 billion annually. Ending this practice and raising the rate would be the biggest drag on dynastic wealth in decades, changing an American economic landscape dominated by a few wealthy families. An Amazon spokesperson did not respond to emailed questions about Bezos’ actions.Read more: How ‘toughening’ inheritance tax would work: QuickTake The proposals are far from becoming law, even though the Democrats control both houses of Congress because they threaten wealthy donors to the two political parties that have lobbied against them. But supporters say eliminating the step-up rule, known to estate planners as the Death Angel Loophole, is crucial to realizing Biden’s vision of tax fairness. Otherwise, economists predict that the proposed increase in the top tax rate on capital gains would encourage more holding assets until death, lowering the revenue of the treasury. value of an asset at its fair market value at the time it is inherited. A beneficiary who inherits a house worth $ 1 million bought for $ 100,000 two decades earlier would have no capital gain. If she subsequently sells $ 1.5 million, she pays only $ 500,000 in tax. The rule also applies to Amazon stocks, which have risen more than 200,000% since a 1997 public offering, as well as other valued assets. the hundreds of billions of dollars a year. About half of the unrealized gains belong to the richest 1%, according to an analysis of data from the Federal Reserve’s Consumer Finances Survey. And unrealized and accumulated capital gains account for about 40% of the wealth of the richest 1%, according to data from the Fed. The step-up rule has been criticized as a government-subsidized engine for amassing dynastic fortunes and a cause of deepening economic inequality. . Even some leading estate planners say the provision – adopted a century ago to avoid double taxation at a time when inheritance tax was low – outlived that original purpose. the mark-up allowance is an unalloyed boon. “It’s a huge loophole,” said Jonathan Blattmachr, a trust and estate lawyer and senior advisor at Pioneer Wealth Partners, a financial advisory firm for high net worth clients and family offices. Republicans and some businesses have criticized Biden’s proposal. An Ernst & Young study commissioned by the Family Business Estate Tax Coalition predicted that eliminating the step-up rule could cost tens of thousands of jobs per year and reduce gross domestic product by $ 10 billion annual. be avoided by the ultra-rich, who can afford sophisticated estate planning, and instead fall on small businesses and family farms, which may have to be sold to pay their tax bills. the country, potentially forcing families to liquidate businesses, raise assets or lay off employees to cover the tax impact, ”said Chris Netram, vice president of domestic fiscal and economic policy at the National Association of Manufacturers , who supported President Donald Trump’s 2017 tax. Biden’s plan addressed some of these concerns by sparing the $ 1 million in valued assets inherited from capital gains tax and exempting family farms and small businesses in cases where heirs continue to exploit them. The plan has been applauded by progressives, who have long called for an end to preferential treatment for capital gains. Frank Clemente, executive director of Americans for Tax Fairness, an advocacy group allied with unions, said the gap between taxes on labor and capital is fundamentally unfair and the administration’s plan is simply seeking to “tax wealth like work”. A version of Biden’s plan was started by President Barack Obama in 2015, but he died in a Republican-controlled Congress Any substantial change to the building rule could upend the financial planning of America’s richest families. , including the techniques they use to avoid capital gains for decades. “To the extent that it is possible to get around the policy, it is largely a political choice,” said Chye-Ching Huang, executive director of the Tax Law Center at New York University Law School. “There are ways to draft it and implement it so that it doesn’t allow for big ineffective tax shelters.” Currently, wealthy people who need cash can take out loans using stocks as collateral, rather than selling stocks, which would trigger a tax bill. . The technique allows billionaires to finance their way of life and then pass their assets on to their heirs without ever realizing any capital gains. Larry Ellison, the founder of Oracle Corp. who bought Hawaii’s sixth-largest island in 2012, had $ 17.5 billion in shares pledged in such loans. as of September, figures from a corporate disclosure show. The strategy was also used by Elon Musk, the second richest person in the world, and Sumner Redstone, the former president of Viacom Inc. who died in August. If the step-up rule changes, capital gains taxes on the assets of these billionaires would be triggered by death. When Apple Inc. co-founder Steve Jobs died in 2011, his fortune of $ 10 billion was relatively paltry compared to today’s tech billionaires. But a base increase still proved valuable: Job’s largest stake was in Walt Disney Co., which gave him stock as part of his 2006 purchase of the animation studio Pixar. that Jobs had bought from filmmaker George Lucas two decades earlier. At the time of Jobs’ death, his Disney shares were worth $ 4.5 billion, and his Apple shares, from a 2003 stock grant, were worth around $ 2.1 billion. at the time of his death, which means the base increase could have saved his family more than $ 750 million in taxes, according to a review of documents filed by the companies. Jobs’ fortune passed to his wife Laurene Powell Jobs, whose wealth has since grown to $ 22 billion, making her the 80th richest person in the world, according to the Bloomberg Billionaires Index. price increased, did not respond to a request for comment. The country’s richest families have spent millions of dollars lobbying Congress in recent years to bypass attempts to raise taxes on inherited wealth, and these efforts have often borne fruit. the Mars family, who built an empire on candy and pet care, helped lead the fight against property taxes during George W. Bush’s presidency and lobbied against efforts to raise taxes. taxes on wealth since inherited, according to Congressional records. He died in 2016 and left his heirs with a fortune of more than $ 25 billion. Today, six family members are among the richest 500 people in the world, according to the Bloomberg Index, sharing a combined fortune of more than $ 130 billion. A spokesperson for the Mars family declined to comment. Administration officials say maintaining the hardening rule would hamper efforts to raise incomes of the rich through higher taxes on investment income. . A policy research group at the Wharton Business School at the University of Pennsylvania found last week that raising the maximum rate of surplus value to 39.6% would generate $ 113 billion in new revenue over the course of the next decade – but only if the base increase is severely limited. . If the policy remains unchanged, the increase in the capital gains rate would encourage more wealthy people to avoid selling assets before they die, costing the Treasury $ 33 billion in lost income over 10 years, according to the study. Economic research indicates that an increase in the maximum rate of capital gains could generate more income than Congress estimates because asset owners have less flexibility on when to realize gains. Eliminating the base elevation would further reduce flexibility, the study found. “You’re telling me that if I effectively doubled the rate and made death an achievement event that you wouldn’t get a lot of money?” said Owen Zidar, professor of economics and public policy at Princeton University and one of the study’s authors. “I find that hard to believe.” But even if Biden’s plan passes, tax professionals and accountants will likely find ways to increase flexibility by using charitable giving and new estate planning strategies. will always find ways to avoid taxes, ”said John Ricco, author of the Wharton Study. “It will certainly reduce the avoidance opportunities – perhaps not as much as supporters of the Biden proposal hope, but it will have a bit of bite.” For more articles like this, please visit us at bloomberg.com with the most trusted source of business news. © 2021 Bloomberg LP

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