The Boomer death tax
“OK, Boomer” is a mocking retort made by a member of the millennial generation to someone born between 1946 and 1964 – the Baby Boom generation. Like Boomers themselves, Millennials are dismissive of advice or direction from the generation that preceded them.
But both Boomers and Millennials – as well as the subsequent Gen X, Y & Z – had better be prepared for what is coming courtesy of the Biden administration – a massive new tax that will hit everyone who has wishes to pass on family wealth to their children and grandchildren. And this new death tax is just one proposal of many emanating from the White House that will inflict real economic harm on the nation.
Fresh from jamming through a $2 trillion Covid relief spending package – 90% of which had nothing to do with Covid relief – the Biden administration just announced another $2 trillion spending plan for “infrastructure.” Like the “American Rescue Plan,” the infrastructure bill called the “American Jobs Plan” is a grab bag of special interest spending that will financially reward those who backed the president. Only a fraction will be spent on the roads, highways and bridges that Americans actually use.
Beyond the sheer wasteful spending, the more critical concern is how Biden proposes to pay for it. His initial idea is to raise the corporate tax rate to 28% and impose a global minimum tax – an idea pushed by his Treasury Secretary, Janet Yellen. The folly in this was exposed by the Wall Street Journal: “Mr. Biden’s corporate tax increases will hit the middle class hard — in the value of their 401(k)s, the size of their pay packets, and what they pay for goods and services.” The Journal warned that even if the damage doesn’t show up immediately, “the corrosive impact will compound in the coming years.”
Here it should be noted that Trump’s tax cuts led to the most vibrant economy in American history and record low unemployment, especially for minority groups. But for the pandemic, the positive economic consequences of pro-growth policies would have continued. Common sense suggests that we should keep those policies in place as we emerge from the government-imposed shutdown.
Instead, Biden and congressional Democrats seek to impose higher taxes on job-creating businesses.
In addition, the “Boomer Death Tax” is one that would hit families directly – a radical increase in taxes imposed on assets transferred as part of an inheritance. This would be accomplished by mostly eliminating what is known as “stepped-up basis.” Here’s the explanation:
When something you own, like a stock or piece of real estate, appreciates in value, you don’t pay taxes on the appreciation until you sell it. For instance, if you bought stock 25 years ago for $5,000, and you sell that stock today for $55,000, you’ll owe capital gains tax on $50,000—the value of the stock, minus your “basis,” or what you paid for it.
However, if you die while still owning the assets, your heirs receive the stock with a “step-up” in basis. Instead of the original price, the basis is the fair market value at the time of your death. This prevents families from having to sell the assets to pay the taxes.
Millennials may smirk at the habits and lifestyles of Boomers, but they need to understand what is at stake here. In an article by Benefits Pro entitled “The Great Wealth Transfer: What Boomers and Their Families Need to Know” the authors point out that Boomers possess between $30 trillion and $70 trillion in wealth that could be transferred to Millennials and other subsequent generations. Biden hopes to seize a big slice of that accumulated wealth at the expense of younger generations.
It is now clear that Biden’s claim that no one who makes less than $400,000 will pay more taxes under his plan is simply false. The elimination or reduction of “stepped-up basis” will hit many middle class families with unexpected capital gains taxes when the next generation inherits a home or long-held investments such as stock or mutual funds.
If President Biden’s plan to go after stepped-up basis worries the average middle class family – and it should – Californians have an extra “stepped-up basis” to worry about, courtesy of the California Association of Realtors, the primary backers (and beneficiaries) of Proposition 19.
Prior to Prop. 19, which narrowly passed in November following a selectively deceptive advertising campaign, parents and grandparents could give the family home and limited other property to the next generation without any increase in property taxes. But now, the transfer of property will almost always result in immediate reassessment to full market value. That’s a multi-billion dollar tax hike for the children of today’s property owners.
From President Biden to the Realtors, progressive interests are planning to take a big bite out of the accumulated savings and assets that parents hope to pass on to their children. Whether you’re a Boomer or not, that’s not OK.
Jon Coupal is president of the Howard Jarvis Taxpayers Association.