May 16, 2022
The federal budget for fiscal year 2023 unveiled by President Biden proposed a huge new tax increase on America’s wealthiest citizens.
The administration labeled it a “Billionaire Minimum Income Tax” and said it brings fairness to the tax code by making the richest Americans pay at least 20% of their wealth gains annually to Uncle Sam. The president is being disingenuous with the title of his plan though because it would apply to anyone worth more than $100 million.
Regardless, the tax system taxes income, not wealth. But President Biden wants to change that and add a 20% tax on wealth gains in addition to the usual income taxes. Stock portfolio had a good year? Pay the tax. Home increased in value? Pay up.
The good news is it’s unlikely this proposal will become law.
But the idea is dangerous, nonetheless. It’s an opening attack that introduces the notion of taxing unrealized income. If that precedent is set, some future broke Congress could lower the threshold to $10 million or even $1 million.
Another tax idea under consideration is eliminating the step up in cost basis. We’ve discussed this in the past. The problem is, it’s popular with Americans across the wealth spectrum.
To me, the idea of taxing unrealized gains is mind boggling. But today, we’ve seen how anything can happen. If paper wealth starts being taxed, what happens after is anyone’s guess.
One solace I think we can take though is that it’s possible exemptions could be granted for some amount of property to be passed along to beneficiaries using the stepped-up basis method. But that’s a maybe.
Either way, American wealth is in Uncle Sam’s crosshairs.