The Tax Thread

[The Center on Budget and Policy Priorities claims that] 55 percent of the assets held by households worth $100 million or more haven’t actually been taxed before being subject to the estate tax.

Let’s repeat that for emphasis: If it weren’t for the estate tax, the majority of the super-rich’s money would never be taxed at all.

How is this possible? The answer has to do with how we do — and don’t — tax capital gains. Now, the first thing to understand is that any increase in the value of your stocks, bonds or real estate is only taxed when you sell them. But what if you don’t? What if you just hold on to them, and eventually pass them on to your kids instead? Well, in that case, you — or, more accurately, they — stand to benefit from one of the biggest loopholes in the entire tax code. The way it works is that it’s not your gains that are taxed, but rather theirs. So let’s say, for example, that you had stock that went from being worth $10 million when you bought it to $100 million by the time you left it to your children. Your heirs wouldn’t owe any capital gains tax on that original $90 million increase — which you also didn’t pay any on — but only on any subsequent increases. This is what’s known as “stepped-up basis,” and, as you could probably guess, it overwhelmingly benefits the rich. The nonpartisan Congressional Budget Office, for its part, estimates that the top 1 percent receive 21 percent of its total money from it, with the next 9 percent getting 34 percent themselves.

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Workers should soon see changes in their paychecks after the government on Thursday released so-called withholding tables explaining to employers how to align people’s paychecks with the new tax law... The administration is asking employers to implement the new tables by Feb. 15 [2018] so that workers will begin seeing the effects of the Tax Cuts and Jobs Act by next month.

The release comes amid warnings from Democrats that the administration could use the obscure tables to juice people’s paychecks this year, by withholding less from their pay, ahead of this year’s midterm elections. That could endanger the refunds people expect to get next year.

Treasury Secretary Steven Mnuchin called the charges “ridiculous” on Thursday and said the share of people receiving refunds should remain unchanged.

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RollTide_HTTR said:

Yup. We do this all the time whenever a client dies.

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Sen. Bernie Sanders has a plan to add more than 50 years of sustainability to Social Security, the New Deal-era program that's facing a looming cash crunch...

To pay for it, Sanders would subject all income above $250,000 to the existing 12.4% Social Security payroll tax, which is split between workers and employers. Currently, the payroll tax is only applied to wages up to $132,900.

Plus, the senator would levy a new 6.2% tax on single people with investment income above $200,000 and couples above $250,000.

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Bamabuzzard said:

So the first 249,999.99 of wages would be exempt from SS tax? Or is the proposal to increase the limit on wages subject to SS tax from 133K to 250K?

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Bamabuzzard said:

The bill simply raises the cap and levies an additional tax of 6.2% (which is coincidentally the same amount as the employee portion of SS payroll tax) on single people with investment income over $200,000, married $250,000.

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TIDE-HSV said:

The loophole has been there since the earliest days of the income tax. It was repealed briefly in 1976 but then the repeal was repealed retroactively the same year. There are powerful interests in favor of keeping it, the real estate industry, for one. Not only is there general revulsion for taxes exacted upon death, it would affect many, many more people than the estate tax ever reached. The history of it is linked below is an ABA monograph, if you like thick reading...

Basis

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