Former Democratic Senator Heidi Heitkamp, one of the party’s leading voices on tax policy, said a proposal to tax assets valued at the death of President Joe Biden would hurt family farms and businesses family.
“I am trying to sound the alarm both economically and politically for Democrats that this is not the way to go,” she said in an interview on “Squawk Box”. “The disruption this will cause to small family businesses, farmers and homestead is not worth it. “
Biden has proposed taxing assets appreciated on death for income over $ 1 million. He also proposed raising the capital gains tax to ordinary income rates. The plan is under discussion in Congress as part of a reconciliation bill. According to his proposal, people who have inherited private businesses or assets worth several hundred thousand dollars may be subject to an immediate capital gains tax of more than 40%, even if they do not make a sale.
Currently, in what is called an “increase on base”, individuals can receive valuable assets without paying tax and the value is “increased” from the current valuation, effectively reducing the value. tax benefit of the deceased. erase. Biden and many progressive Democrats say the move is a huge loophole for the wealthy, allowing millionaires and billionaires to pass businesses and assets to their families from generation to generation without paying capital gains tax.
Hetkamp, who served in the Senate until 2019, chairs a new nonprofit called Save America’s Family Enterprises (SAFE), which campaigns against the proposal and runs ads featuring family businesses. Neither Hetcamp nor the group disclose their donors.
Hetkamp said she supports increasing the capital gains tax to ordinary income rates because “unearned income should not be taxed at a much lower rate than earned income.” She is also in favor of eliminating mark-ups in the base, so that assets are not “upgraded” to a new valuation when they are inherited, but retain their original basis when they are sold.
He said opposing Biden’s plan was an immediate tax on death. Families should only pay capital gains tax when the property is sold and the gain is realized, she explained.
“What I find most disturbing about this is that suddenly, for the first time, we are going to tax unrealized capital gains,” she said. “My position has always been that you should make capital gains. “
She cited the example of a truck driver named Sam, whose family has owned a Lake Cabin in Minnesota for generations and its value has skyrocketed with gentrification over time. Next door, a wealthy buyer buys land for $ 2 million and builds a mansion for $ 2 million. If both die, the wealthy owner can pass his property on to his family and pay no tax, as he will have a higher current base. However, Sam’s family will potentially have to pay millions in taxes even if the family doesn’t sell the property.
She said this would also apply to family businesses and farms.
“Family assets are more than a balance sheet,” she said. “Family ownership is about where we work, where we live and where we recreate. When you tax unrealized capital gains, you are opening a Pandora’s Box. Which won’t stop for a long, long time.
The White House said family farms and family businesses would be exempt from tax until the assets are sold. Households will also have up to 15 years to pay the tax to reduce the pressure on them to sell immediately. A White House analysis said only the richest 0.3% of taxpayers would have to pay taxes, as couples could be exempted up to $ 2.5 million if that included real estate.
Howard Glickman, a senior researcher at the Urban-Brookings Tax Policy Center at the Urban Institute, said Biden’s plan to tax assets appreciated on death is an important part of the overall plan to increase rates of capital gains at death. ordinary income rates. Without taxing assessed property on death, he said, wealthy families would simply keep the property indefinitely to avoid the higher capital gains tax.
“Biden’s proposal to raise capital gains tax rates to ordinary income rates would produce little income and have troubling economic effects without any gain in the event of death,” he said. “Even with an increase, tax will not be paid until the heir sells, which could occur decades after the death of the original investor. He or she could leave investments stuck in underperforming assets for generations tied up. ”