According to a source familiar with the plan, President Joe Biden’s tax package would include an end to a major gain for wealthy estates, that significantly reduces the levy for inheritors, as well as an increase in the top income tax rate and support for strengthened IRS auditing. Ending “step up in basis,” which requires heirs to use the market value of assets at the time of inheritance as the cost basis for capital gains, when the shares are sold, will result in far higher tax bills for wealthy properties.
According to the Biden’s plan would have a top individual tax rate of 39.6 percent, for those earning more than $400,000, up from 37 percent today. If existing income rates are used, this could impact around 1 percent of taxpayers. The person did not specify if the $400,000 amount applies to married couples filing jointly as well.
Biden’s proposals include spending $80 billion over the next decade, to improve the Internal Revenue Service’s auditing capabilities for affluent individuals and companies, a move that could raise $700 billion in revenue. In its blueprint for the 2022 annual budget however, the administration has also requested further funds for compliance.
As of Biden’s “American Families Plan,” which he’ll unveil in a speech to Congress on Wednesday, will rely heavily on these plans to cover its costs. The initiative, which is estimated to cost well over $1 trillion and up to $1.8 trillion, is expected to provide support for paid leave, healthcare, and education.
Many affluent taxpayers would see a substantial rise in the taxes they owe annually, when they will sell large assets, such as stocks or companies, due to higher income tax rates for top earners and a 39.6 percent capital gains limit for those making $1 million or more.
Couples earning $1 million will be affected by Biden’s capital gains increase. Repealing the move up in basis provision, will put an end to a long-standing tax exemption that wipes out capital gains on inherited assets, ensuring that much of the appreciation on shares, real estate, and small businesses goes untaxed when the original owner passes away.
The IRS (Internal Revenue Service) plans to spend billions more on audits, in order to reverse a multi-year trend of declining audit rates. Commissioner Chuck Rettig recently told a congressional panel that up to $1 trillion in taxes could go uncollected per year. According to him, the department has lost 17,000 law enforcement officers since 2010.
Democrats in Congress have proposed increasing auditing standards by beefing up the agency’s compliance staff and requiring higher inspection rates for high-income earners. A pool of $80 billion for IRS compliance over ten years, averaging $8 billion in extra funding per year, will be a substantial boost for the IRS, which has a total annual budget of around $11.9 billion for fiscal year 2021.
