The death tax provision of President Biden’s “American Families Plan” not only financially punishes people receiving inherited assets but also attacks the values of tradition, family and property. By turning deaths and gifts into mere “transactions,” the Biden Administration displays an alarming disregard for protecting American families and their property. Additionally, these new legal proposals would radically break from the traditional pattern of taxation on capital gains.
What Is the New Death Tax?
This most recent attack seeks to expand education, child care and other efforts to fight poverty using funds that would come partly through increased death taxes.
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The main change is that taxation will be based on a new “carry-over” policy rather than the present “step-up” one. The new policy turns death, and thus the giving of inheritance, into a transaction. Therefore, the current capital gains tax on inheritances at death is the difference between the value at the time of transfer and whatever appreciation of value has occurred if sold more than a year after transfer.
The new “carry-over” rule would push back the initial point of taxation from the time of transfer to when the initial investing was done. For example, if someone invests $150,000 at the beginning of his life-long career, that investment might be worth $3 million at the time of his death. Under today’s rules, his four inheritors do not pay any capital gains taxes on that gain at death. Under the new Biden Administration’s plan, each inheritor’s share of $750,000 would be subject to a 20% tax, which comes to $150,000 per heir.
Furthermore, if an heir receives an amount that increases his Adjusted Gross Income (AGI) past $1 million, additional taxes kick in at a total rate of 43.4% on the income. Such cases are especially burdensome on farmers and small business owners. Heavier taxes could also significantly hurt businesses and farmers inherited during a time of poor profitability.
The Death Tax Is a Cumulative Attack on Tradition
In the context of tradition, America has long resisted death tax proposals. The new Biden tax proposal on estate transactions is a further step forward in a series of historic government encroachments on the patrimony of American families.
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In 1797, Congress imposed a stamp tax on the execution of all wills. The revenue went towards building up the U.S. Navy in preparation for the raging Caribbean naval conflict with the French, dubbed the “quasi-war.” Congress repealed the tax in 1802. The Revenue Act of 1862 revived the death tax for the Civil War, and Congress again repealed it by 1872. The same process repeated itself for the Spanish-American War.
In 1913, a permanent estate tax became possible with the ratification of the Sixteenth Amendment. The text of the amendment reads that “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
This empowered Congress to pass The United States Revenue Act of 1916, which permanently established the federal estate tax upon the death of property owners. No longer a matter of national emergency, the estate tax takes a cut out of the fruits of one’s labor after death. In 2012, the American Tax Relief Act entrenched the estate tax in the tax code, which causes difficulties for lawmakers if they try to remove it.
The Death Tax Infringes on the Family
The Biden death tax proposal further harms families by turning death into a cold bureaucratic transaction. Although piling federal and state capital gains taxes on top of current estate taxes may seem like an economic matter, transferring material goods can be meaningful expressions of affection. They can be a final way of saying goodbye between dying parents and their children. By turning death into a transaction, the state shows disregard for the grave and sacred notions of death. As John Horvat notes in his article, the new tax proposals represent a vain effort to support a wide range of individuals, at the expense of the family they claim to defend.
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The Death Tax Strikes Against Property Rights
The tax plan attacks property by serving as a tool to harvest money from all those who have succeeded in life, from upper-middle-class Americans to billionaires. This egalitarian and anti-property aspect financially penalizes well-off and stable families to fund the misguided and anti-family initiatives within the plan. It will punish the better off to address what is mainly a moral crisis.
The taxes would also punish the hard-working and financially careful families that make wise investments that appreciate over time.
The new death tax proposals are radically socialist encroachments on tradition, family and property.
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