Under President Biden's "Billionaire Minimum Income Tax" proposal, individuals with a net worth of more than $100 million would at death be paying what amounts to a double tax on capital gains, Scott Squillace, tax and estate attorney, says in an interview with ThinkAdvisor.
The accelerated capital gains tax on unrealized appreciation of securities in Biden's plan is "being characterized as a prepayment so that later, if the assets are sold, you've already paid the capital gains tax and don't have to pay that again."
But "you would effectively lose the benefit of the step-up in basis," so the estate tax would amount to a second tax at death on the same assets, the founder of Squillace & Associates maintains.
Be that as it may, the accredited estate planner believes that Biden's plan for the nation's 0.01% of earners to "pay their fair share," as the president puts it, is as doomed as doomed can be.
There's "an icicle's chance in hell" that Congress will pass it, Squillace says.
His firm focuses on estate and tax planning for small-business owners and professionals such as physicians and attorneys. It also specializes in the LGBTQ community and international estate and business planning.
Biden proposes at least a 20% tax on total income including unrealized capital gains for people with a net worth of more than $100 million. Right now, billionaires pay 8% of total realized and unrealized income, according to the White House.
In the interview, Squillace theorizes a way to adjust the tax rate so that ultra-wealthy folks will no longer be paying taxes that are lower than those of nurses and teachers.
He notes, however, that "that would cause the whole system to be turned upside-down and inside-out."
ThinkAdvisor recently interviewed Squillace, who was speaking by phone from Boston.
About the wealth tax, he says: "The real issue is: How do you define someone's net worth? That's a Pandora's box."
Here are highlights of our interview:
THINKADVISOR: What do you think the chances are of President Biden's "Billionaire Minimum Income Tax" plan passing?
SCOTT SQUILLACE: I put it in the category of an icicle's chance in hell. Even the Senate might find it problematic.
There are so many issues in terms of how the wealth gets calculated. It was fatally flawed from the get-go.
Just how would the plan affect the mega-wealthy?
It would accelerate the capital gains tax on unrealized gains. Typically, investment income that appreciates gets taxed once the gain is realized upon a sale of the assets.
But Biden says that unrealized gains would not be taxed under the plan. He calls that aspect a prepayment or withholding tax on future capital gains. Your thoughts?
It's being characterized as a prepayment so that later, if the assets are sold, you've already paid the capital gains tax and don't pay again.
The administration is spinning it [as though] it wouldn't be a double tax. But it would be, at death.
Please explain.
It would have an effect on the estate tax [for taxpayers who are above the exemption] because typically you get a step-up in basis at death so that the capital gains tax is wiped out.
But in this new scenario, you'd wind up paying the capital gains tax and still pay the estate tax. So there would be a double tax.
The same assets would be re-taxed at death because you would effectively lose the benefit of the step-up in basis since you would have already paid the capital gains tax.
