Biden’s gambling on another death tax to fund his budget goals

Our nation’s job creators have endured an economic calamity unlike anything we have ever seen in modern times — the crushing blow of COVID. In response, President Joe Biden promised to “Build Back Better” America’s economic growth and prosperity opportunities. But his proposed American Families Plan threatens the very foundations of those opportunities — a foundation long supported by small businesses across America. 

Republican and Democratic presidents before Biden offered plans to sustain America’s greatness; however, these goals often become lost in the bureaucracy of Washington’s partisan fights. The real tension is about who sacrifices and pays for the cost of prosperity. 

Under Biden’s plan, more small business owners will be required to make that sacrifice than you may think. In particular, the president would eliminate the step-up in basis from the transfer of appreciated property — effectively imposing a second “death tax” and increased bureaucracy on families, small businesses and farms. 

Americans for Tax Reform say: “Elimination of stepped-up basis would impose an automatic capital gains tax at death — separate from, and in addition to — the death tax. This forced capital gains tax from Biden will hit Americans regardless of whether assets are sold or kept.” 

We must not ignore the impact of such a proposal just because people think it’s a problem for the rich. It isn’t. It’s a very real problem for small business owners on Main Street (especially minority-owned businesses) and family farms.

A study published by the Regional Economic Models Inc. (REMI) projects the increase in a capital gains tax could cost 745,000 jobs over 10 years and violently tax unrealized capital gains when heirs inherit assets, resulting in a “significantly negative impact” on the economy.

As Chris Netram, vice president of taxation and domestic economic policy at the National Association of Manufacturers noted: “Stepped-up basis protects family-owned manufacturers from significant tax bills when businesses are passed onto the next generation. As this report shows, repealing step-up could have a dramatic impact on small manufacturers across the country, potentially requiring families to liquidate businesses, leverage assets, or lay off employees to cover the tax hit.” 

Brace for impact, as this plan would cost families billions of dollars in additional taxes upon the transfer of appreciated property. A donor or deceased owner of an appreciated asset pays a capital gain when the asset is given or bequeathed to another. The amount of the payment owed is calculated by the difference between the asset’s fair market value on the date of the transfer and the donor’s basis, or purchase price, in that asset. That gain would be taxable income to the donor in the year the transfer is made and to the estate of the deceased either on the final individual tax return or on a separate capital gains return. This is called a double tax — allowing the government to benefit from the transfer of the same asset twice. The deceased’s estate pays, and the next generation pays — no matter their race or income level — as these massive tax bills will devastate both. 

So, it’s important to note that the Treasury Department’s analysis that “97 percent of small businesses are exempt from tax increases” under the president’s plan sounds good on paper but, as noted by the Tax Foundation, “is false.” They warn that the administration’s data is misguided because it focuses on the number of taxpayers affected rather than the economic activity through income and investment that will be affected by the proposal. The Tax Foundation’s experts conclude that actual statistics show more than half of pass-through business income could face tax increases.  

As we continue our health recovery from COVID, many Americans are also asking what can be done to support and sustain our economic recovery. We are constantly trying to balance the desire to grow our states’ economies, improve roads, provide better education for children and strengthen our health system. Consequently, the urge to raise taxes on our nation’s business leaders is seductive and often a quick fix. But it is not necessarily the best policy when its impact is likely to be disproportionate and harmful to the recovery we seek.

President Biden, lean on the principles you witnessed growing up in Scranton, Pa., when everyday citizens had to sit down at the kitchen table and balance their budget without creating negative outcomes for their family. We need you to bring that same appreciation through common-sense solutions that won’t injure what Americans value — our family farms and small businesses.

Michael Steele is the former Republican National Committee chairman and former lieutenant governor of Maryland. He is also an MSNBC political analyst.