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Congress still eyes on taxing high-net-worths

This year, the stakes for Democratic lawmakers in Washington are as high as they have ever been. Recent polling shows voters overwhelmingly disapprove of Congress’s work – by more than 43 percentage points. And Democrats can’t look to President Biden to save him because he’s not doing much better. Add to this the cues from state races in New Jersey and Virginia last fall, in which Republicans outperformed in states where President Biden won, and the picture looks grim for Democratic control of Congress continuing next year.

That’s why Democratic lawmakers are doubling down on voters this year to remind them that they care about their top troubles and that they have issues to address such as the economy, the ravages of COVID, fair and transparent voting, and stemming the tide of climate change. ‘s plan. None of these concerns should come as a surprise: “It’s the economy, idiot,” to quote a former president. In fact, the economy tops several recent polls of voters, with COVID running in second place.

Build Back Better Act

The Build Back Better (BBB) ​​Act was intended to address many of these issues and make voters feel better about their finances, funding a $3.5 trillion social spending plan with tax increases on wealthy taxpayers. . Despite being easily passed in the House of Representatives in November, the BBB Act met its doom in the Senate late last year and likely won’t make meaningful progress this year.

addressing wealth inequalities

So, where will the pivot of the Democratic majority be? Perhaps in some small bills to show voters they can lead and answer serious problems. But the law means painstaking settlement – ​​and increasingly not only with Republicans but with members of his own party; It’s far easier to hold hearings and press conferences to talk about solutions to problems plaguing voters and how Democrats intend to enact legislation. Our trend points to an upcoming congressional hearing that highlights economic inequality (accelerated by the uneven economic rebound amid COVID), as well as the tax scheme used by the wealthy to legally evade taxes; The latter is discussed in great detail by widely read publications that point to GRATs (Granter Retained Annuity Trusts) as a comprehensive estate tax hedge and IRAs as abusive tax shelters, to name a few. For. Our trend was confirmed privately by a senior aide in Congress, who recently shared that plans are underway for several hearings in the Senate on avoiding taxes from high-net-worth individuals.

It is not just the mid-term elections that have MPs interested in these hearings. Privately, lawmakers see the oft-cited $70 trillion wealth transfer over the next 25 years as an important reason for negotiating wealth redistribution because both Democrats and Republican lawmakers are quietly acknowledging that it takes more to justify inaction on wealth inequalities. It’s a tough time.

So, what other proposals can Congress discuss to address these issues? Some that target wealth inequality and are already on the table at the BBB include a 5% surcharge on modified adjusted gross income over $10 million (with an additional 3% for income over $25 million) and A limit on individual retirement account contributions for accounts with more than $10 million or taxpayers with income over $400,000.

Thoughts MPs likely to consider

If lawmakers want to get creative and tackle an even greater redistribution of wealth, they can consider the following ideas that have been loudly proposed but so far stuck on the back burner:

  1. raising the top income tax bracket from 37% to 39.6% for incomes over $400,000;
  2. raising the capital gains tax rate to 25% for wealthy taxpayers (with incomes over $400,000);
  3. restricting the use of assessment exemptions;
  4. to eliminate the use of grantor trusts as a method of transfer of funds; And,
  5. Taxing or regulating charitable donors.

As for any estate tax changes in the next year or so, a lot of headwind is coming from farm-state Democrats to effect the change. That said, the 2017 tax law, which Doubling the property tax exemption from $11 million to more than $22 million per couple, sunset at the end of 2025. So, change is coming, even if Congress does nothing.

The challenge for every parliamentarian with these proposals is walking the fine line between increasing taxes and not hurting their payer base. Many of these taxes focus on the “working rich”—those earning more than $400,000 a year who are hardly in the mega-millionaire class, especially for taxpayers living in many metropolitan areas. This sentiment was echoed by billionaire Leon Cooperman, who recently agreed that wealthy people should pay more in taxes, but he does not believe that someone making $400,000 a year “rich”. It is also relevant from a practical standpoint that these tax increases are targeting the same group of individuals most likely to financially support Congressional candidates. So, what is the actual result?

look forward to hearing

Razor-slim margins in Congress take some tax hikes as lawmakers shy away from biting the hand that is feeding their campaign coffers. And partisanship is freezing the passage of most other laws. But the hearing gives Democrats the best of all worlds. Their control over Congress gives them the luxury of choosing the topics they want to highlight and scheduling them at a time that maximizes their impact.

Looking ahead, we expect hearings – and many of them – to iron out arguments (pros and cons) about provisions that address wealth inequality, highlighting the value of public class and redistribution. . At the same time, we are confident that there will be action, anger and name-calling this year. In the meantime, any real progress towards change will have to wait.

Sandra Swirsky is the co-founder of Urban Swirsky & Associates LLC and Steve Ocamp Tiedemann is the chairman of the trust company and the managing director of Tiedemann Advisors.

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