(Tax Foundation) Last December, when Joe Biden released the details of his $3 trillion+ tax plan, The Washington Post reported that the presidential candidate rejected calls for a new “wealth” tax on millionaires and billionaires.
That was then, this is now.
Biden may have rejected a Bernie Sanders-style wealth tax, but as our updated analysis of Biden’s plan indicates, the Democratic nominee is proposing other ways of taxing wealth without explicitly labeling his policies a wealth tax.
Instead of taxing wealth on an annual basis, as was advocated by Sen. Sanders (I-VT) and Sen. Elizabeth Warren (D-MA), Biden would tax wealth at death—by as much as 67 percent.
Biden is proposing two major tax increases on accumulated wealth.
First, he would tax unrealized capital gains at death for taxpayers with incomes above $400,000. For a (deceased) taxpayer who earned more than $400,000 but less than $1 million, this would subject those unrealized gains to the current capital gains rate of 20 percent, plus the 3.8 percent Net Investment Income Tax (NIIT), for a total of 23.8 percent.
This is before the assets might be subject to the estate tax (more on that below).
However, Biden also wants to tax the capital gains of millionaires at ordinary income tax rates, which would be levied at his proposed top marginal rate of 39.6 percent. Added to the NIIT, this would mean a total tax rate on capital gains of 43.4 percent. As the accompanying table illustrates, for an asset worth $100 million (all of which is a capital gain for the sake of simplicity), this would mean an immediate tax of $43.4 million at the time of death.
It appears that Biden does not believe these assets had been taxed enough because he is also proposing to turn back the clock on the estate tax to 2009, when the top rate was 45 percent (compared to 40 percent today), and the exemption level for single taxpayers was $3.5 million (as opposed to $11.58 million today).
As the table indicates, after the capital gains tax was paid at death, the value of the $100 million asset was reduced to $56.6 million for the purposes of the estate tax.
After subtracting the $3.5 million exemption, Biden’s 45 percent tax rate is levied on the remaining $53.1 million in assets. This produces an estate tax bill of $23.9 million.
When we combine these two taxes, we get a total tax liability of $67.3 million on the original $100 million asset, for an effective tax rate of 67 percent. This is nearly twice the effective tax rate that this asset would face today under the existing estate tax rules.