As inflation takes off, politicians are eyeing more of your money – Daily bulletin
In a grocery store near you, prices go up and sizes go down. Inflation is booming.
This is something former Treasury Secretary Lawrence H. Summers warned against in February, when he unsuccessfully advised the Biden administration to reduce the size of its COVID-19 relief legislation by 1 , $ 9 trillion. Calling the plan “macroeconomic stimulus on a scale closer to WWII levels than normal recession levels,” he predicted it could “trigger inflationary pressures of a type we haven’t seen. for a generation “. Summers also questioned how the administration would pay for “public investments which should be the country’s top priority.”
There is still no agreement on this. The “US bailout” was followed by proposals for infrastructure spending of several trillion dollars, with the source of funding still uncertain.
On Wednesday morning, Senate Finance Committee Chairman Ron Wyden, D-Oregon, proposed taxing unrealized capital gains in billionaires’ investment portfolios. The proposal targeted taxpayers with more than $ 1 billion in assets or $ 100 million in income for three consecutive years. Wyden wanted to impose a 23.8% long-term capital gains tax on tradable assets, such as stocks, even if they had not been sold.
Wednesday afternoon, the proposal seemed dead. House Ways and Means Committee chair Richard Neal, D-Massachusetts, said the idea was too complicated.
It is also quite simply wrong. Taxing paper profits on an asset that has not been sold is asking a taxpayer to pay taxes on a potential gain. It could turn into a loss, and even Wyden admitted that billionaires should be allowed to write off their losses.
It is likely that any tax considered by Congress will quickly descend the economic ladder to affect large numbers of Americans who work for a living.
For example, Democrats have been keeping their eye on inheritances as a new source of tax revenue. A proposal to remove the “capital gains increase” has been launched by the Biden administration.
The “step-up” refers to the tax base, or acquisition cost, of an asset. If your parent paid $ 1 per share for a share and sold it for $ 100 per share, the profit of $ 99 per share is a capital gain that is taxed. But if your parent dies without selling, and you inherit the stock purchased for $ 1 per share on a day when the stock was valued at $ 100 per share, your tax base is $ 100. If you later sold it for $ 102, you owed capital gains tax on a gain of just $ 2 per share. The same is true for real estate. If you inherit a house, your tax base is the value of the house on the day you inherit it, regardless of the price your parents paid years ago.
For ordinary families who are not billionaires, removing the “grossed-up base” would be a massive tax increase. The value of inherited assets would be dissipated by taxes as soon as they are transferred.
President Biden wanted to go even further. He proposed to treat inheritances as if they were sales and force heirs to pay taxes on the difference between the original purchase price of the asset and the present value on the date of death. He suggested an exemption of $ 1 million for single filers and $ 2.5 million for married couples, but that was not enough to convince the House Ways and Means Committee, which dropped the entire package. the proposal in September, citing concerns about how that would affect the family. owned businesses and farms.
It would crush them, that’s how it would affect them.
Raising taxes hurts people, especially when taxes are raised on people who don’t have the income to pay them.
This is what happened in the 1970s, the last time inflation got out of hand. Home prices in California were skyrocketing and when tax assessors reassessed the properties, homeowners received a new tax bill based on the current market value. People who couldn’t pay the new tax bill were forced to sell their homes.
Proposition 13 was the result. Almost two-thirds of voters statewide approved the initiative that amended the state’s constitution to prohibit revaluation of property until there is a change in ownership. The prop. 13 allowed an increase in the cost of living of the estimated value of the property, but capped it at 2% per annum, and it reduced the property tax rate to 1%, compared to an average of 2.67% per year. statewide.
It was the oppressive impact of inflation that drove the prop. 13 to cross the finish line in 1978, and the same inflation led to the passage of Proposition 58 in 1986. Many people who inherited property from their parents did not have the income to pay for the property. property. taxes based on current market value. They were forced to sell until they were saved by Proposition 58. This changed the state constitution to allow parents to transfer to their children a house of any value and up to $ 1 million assessed value of other property without reassessment. The prop. 58 was immensely popular. It was put on the ballot unanimously in the Legislative Assembly and was approved by over 75% of voters.
Now it’s gone. The fine print of Proposition 19, which narrowly passed in November 2020, repealed Proposition 58 to eliminate higher taxes on families inheriting property. Today, with a few exceptions, people who inherit property from their parents have to pay much higher property taxes based on current market value, otherwise they have to sell.
The simple fact is that inflation is itself a tax increase. This not only forces consumers to pay more for less, but it drives up taxes with slipping tax brackets and inflated asset valuations.
So don’t believe President Biden when he says no one earning less than $ 400,000 a year will see a tax increase. His claims are wildly inflated.
Write to Susan at: [email protected] Twitter: @Susan_Shelley.