The Biden administration’s new tax proposals target America’s top earners while inadvertently hurting small businesses.
In an analysis by the Tax Foundation, economist Alex Durante wrote, “The Biden administration has primarily focused on increasing taxes on top earners to generate revenue to fund its spending priorities. However, these proposals would hit many pass-through businesses and much of pass-through business income, including small businesses, family-owned businesses, and farms.”
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Biden’s plan would involve increasing the capital gains tax rate on the wealthy to 39.6%, applying the net investment income tax to active pass-through income for those earning more than $400,000, and permanently applying 2017 tax reform’s limitations on “excess losses,” and taxing unrealized capital gains above $1 million at death. Current tax laws, known as the “step-up” basis, do not increase additional capital gains tax liability for heirs.
A second analysis by the Agricultural and Food Policy Center, finding, “Eliminating stepped-up basis would impact 98% of farms, with an additional tax liability incurred of $726,104 per farm.” Biden’s tax proposal aims to use the money to fund universal kindergarten, free community college, paid family leave and tax credits for low- and middle-income households.