Former Senator Heidi Heitkamp, one of the Democratic Party’s leading voices in tax policy, said President Joe Biden’s proposal to tax valued assets in the event of death would harm family businesses and family businesses.
“I am trying to sound the alarm for the Democrats, both economically and politically, that this is not a way,” she said in an interview with the Squawk Box on Wednesday. “The disruption it would mean to small family businesses and farmers and family wealth is not worth the pain.”
Biden has proposed taxing estimated death assets for income over $ 1 million. He has also proposed raising capital gains tax on ordinary income rates. The plan is up for debate in Congress as part of the Law of Reconciliation. Under his proposal, individuals inheriting millions of dollars’ worth of private businesses or real estate could face an immediate capital gains tax of more than 40% even if they fail to sell.
Currently, individuals can inherit valued assets on a “step-up-in” basis without paying any tax and the value is “upgraded” to current valuations, effectively erasing the testator’s profit for tax purposes. Biden and many progressive Democrats say the top-up is a huge loophole for the rich, allowing millionaires and billionaires to pass businesses and assets on to their families through generations without ever paying capital gains tax.
Heitkamp, who represented North Dakota in the Senate from 2013 to 2019, is the chairman of a new nonprofit called Save America’s Family Enterprises, which is campaigning against the proposal and running ads for family businesses. Neither Heitkamp nor the group would reveal the names of their donors.
Heitkamp said she is in favor of raising capital gains tax to normal income rates because “unearned income should not be taxed at a rate so much lower than earned income.” She is also in favor of abolishing the increase in the base.
Her rejection of Biden’s plan is immediate tax after death, she said. Families should only owe capital gains tax if the asset is sold and the profits realized, she said.
“The problem that worries me most is that all of a sudden, for the first time, we will be taxing unrealized capital gains,” she said. “My position has always been that you should realize the capital gain.”
She gave an example of a truck driver named Sam, whose family has owned a Minnesota lake cabin for generations and whose value has soared over time with gentrification. Next door, a wealthy buyer is buying a piece of land for $ 2 million and building a mansion for $ 2 million. If both of them die, the wealthy owner could pass their property on to their family and not pay taxes as they would have a high, current base. However, Sam’s family could owe millions in taxes after his death, even if the family did not sell the property.
The same applies to family businesses and farms, she said.
“Family wealth is more than a balance sheet,” she said. “Family wealth is about where we work, where we live, and where we relax. If you look at the taxation of unrealized capital gains, you are opening a Pandora’s box that will not be closed for a long, long time.”
The White House said family businesses and family businesses were tax exempt until the assets were sold. Families also have up to 15 years to pay the tax to ease the pressure on them to sell immediately. A White House analysis found that only the richest 0.3% of taxpayers owe the tax, as couples can get exemptions of up to $ 2.5 million for holding real estate.
Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute, said Biden’s plan to tax estimated assets in the event of death is an important part of the overall plan to raise capital rates of return to normal income rates. Without taxing valued assets in the event of death, wealthy families would simply hold onto their wealth indefinitely to avoid the higher capital gains tax.
“Biden’s proposal to raise capital gains tax rates to normal income rates would generate very little revenue and, without some form of realization, have nasty economic effects in the event of death,” he said. “Even if it were increased, taxes would not be paid until the heirs sold, which could take decades after the original investor died.