By Daniel Mayo, Principal – Withum Smith+Brown, PC
Septemnber 20 2019 – As the race for President starts to heat up, Democratic hopefuls are putting forth numerous tax proposals to fund their agendas and appeal to their respective electoral bases. Some of these proposals will die on the vine, and others will persist and perhaps soften as the race thins out and the candidates “move to the center.”
Former Vice President Joe Biden proposes to return the highest marginal income tax rate for individuals to 39.6% (from the current 37%) for taxpayers earning more than $1 million per year, to raise the tax on capital gain by treating it as ordinary income (taxable at rates up to 43.4%) for those earning more than $1 million per year, and to eliminate the step-up in basis on death that currently allows decedents to transfer capital gain to heirs without tax.
Sen. Elizabeth Warren proposes a 7% tax on ”real corporate profits,” which she defines to include a corporation’s profits as reported on its financial statements less a $100 million exemption, and a 14.8% payroll tax increase on incomes above $250,000 per year ($400,000 for joint filers). She also proposes a separate 14.8% tax on investment income and a new “ultra-millionaires tax,” which is an annual wealth tax on assets over $50 million. The wealth tax proposal would impose a 2% tax on all taxpayer’s net worth in excess of $50 million, and a 3% tax on assets above $1 billion. The tax base for this proposal is broad, including all household assets anywhere in the world, assets held in trust, retirement assets, assets held by minors, and personal property with a value of at least $50,000. Sen. Warren analogizes her tax proposal to real estate taxes, and adds that she just wants “the ultra-rich to pay a wealth tax on the diamonds, the yachts, and the Rembrandts too.” Some economists believe the tax would affect about 75,000 households.
Other Democratic candidates have expressed support for some version of a wealth tax (Sen. Bernie Sanders, Pete Buttigieg, and Beto O’Rourke), and some have even proposed increases to the estate tax (Sen. Bernie Sanders).
Sen. Bernie Sanders has (again) proposed a financial transactions tax (FTT) that would impose a 0.5% (50 basis points) tax on stock transactions, 0.1% tax on bond trades, and 0.005% tax on derivatives transactions. While the proposal does include offsets to mitigate the impact on families earning less than 50,000 per year ($75,000 for married taxpayers filing jointly), Sen. Sanders’s estimates the current version of his FTT would raise about $2.4 trillion over 10 years, which he proposes to use to offset the cost of his student debt reduction plan.
Andrew Yang proposes to fund his so-called Freedom Dividend with a 10% value-added tax (VAT), along with other taxes on capital gains, carried interest, financial transactions, and more. VATs are levies that tax businesses on the value added to a product or service at each point in the production chain. It is like a retail sales tax that is collected in stages, though its ultimate cost is borne by consumers. The VAT is prevalent in Europe and in other parts of the world, and is of particular interest here in the US because once enacted, rate creep is sure to set in because it is a “money machine” with tremendous revenue-raising potential.
There are lots of other tax proposals out there, and we are sure to see more as the candidates seek to distinguish themselves and their platforms. So buckle up because there is certainly more to come.
For questions or to discuss how these proposed changes may impact you, contact a member of Withum’s Tax Services Group by filling out the form below.
