Will a Biden Victory Lead to “Taxmegeddon”?
Joe Biden is now a shoo-in for nomination as the Democratic Party’s candidate for this year’s election. Current opinion polls show him beating Donald Trump in a head-to-head contest, although Trump could still lose the popular vote and still win the Electoral College, as he did in 2016.
The question is: if Biden wins, how much higher will your tax bills go?
Biden wants to repeal much of the Tax Cut and Jobs Act (TCJA), which reduced the corporate tax rate to 21% and the top personal rate to 37%. He’s also proposed increasing taxes on Americans making more than $400,000 annually and raising the corporate tax rate to 28%.
But keep in mind that absent Congressional action to make them permanent, the lower personal income tax rates the TCJA brought into effect will expire at the end of 2025. At that time, the top personal tax rate would go back to 39.6%. Of course, Congress could end them sooner if it chooses.
Another expiring provision is the higher exclusion for death taxes. For 2020, estates valued at more than $11.58 million are subject to a 40% tax rate. Married couples who are both US citizens can double the value of assets they can pass to their beneficiaries estate-tax free. But absent Congressional action, the threshold will revert in 2026 to $5.6 million, adjusted for inflation between 2018 and 2025.
Another possibility is a wealth tax like the one Elizabeth Warren advocates. She proposes a 2% annual tax on assets of households with a net wealth of $50 million or more. The tax would increase to 3% for billionaires. She suggests this tax would be a good way to start paying for proposals such as “Medicare for All.”
Then there’s the idea of subjecting all earned income to Social Security tax at a flat rate of 12.4% on self-employment income or 6.2% from employee paychecks. Current law imposes no Social Security on earned income exceeding $137,700 per year.
The nightmare scenario is that all these changes come into effect simultaneously, with retroactive effect to 2020. Ouch!
But the only way Biden can raise taxes without support from at least some Republicans is with Democratic control of the House and a super-majority – at least 60 seats – in the Senate; enough to prevent a filibuster. Even if Democrats take control of the Senate in 2020, they’ll have 51 or possibly 52 seats at most – but not 60.
And of course, most Democrats don’t like raising taxes. It’s easy for politicians to give away money, and voters love to receive handouts. It’s even easier to pass the problem of paying for the giveaways into the future. That’s why there’s a $25.6 trillion national debt and more than $200 trillion in unfunded future obligations promised to future beneficiaries, but with no money set aside to pay.
That’s also why no matter who wins the 2020 election, it’s likely Americans will see higher – much higher – taxes in the future. But higher personal and corporate tax rates, a wealth tax, and higher Social Security taxes are only the beginning. For instance, I wouldn’t be surprised to see an "excess profits tax" imposed on tech giants to help pay for COVID-19 related government relief. Or on gold if the price goes high enough.
If inflation returns, forcing the Fed to raise interest rates, all bets are off the table. We might wake up one Monday morning to learn that over the weekend, Uncle Sam has imposed a “one-off capital levy” – outright confiscation – of 10% or more of private savings. This is the strategy endorsed by analysts at the International Monetary Fund.
The most obvious target of such a levy would be domestic bank and securities accounts, along with the cash value of life insurance and annuity contracts. Using a domestic LLC or other domestic entity to hold the account wouldn’t prevent confiscation, unless you could prove the ultimate beneficial owner isn’t a US person (and maybe not even then).
Cash holdings (e.g. Federal Reserve notes) might not be affected by the levy, although once central banks roll out digital cash to replace physical cash, it would be.
If you don’t welcome the thought of Big Brother’s grabby hands snatching your savings, you’re not alone. That’s a big reason over $20 trillion of private wealth now resides outside the countries where it was generated. Much of that wealth is in non-financial assets such as real estate, cryptocurrencies, and precious metals.
But ultimately, the only certain way to avoid a capital levy is to move all your assets out of the US, acquire a second citizenship and passport, relocate to another country, and subsequently give up US citizenship.
Protecting your assets (and yourself) against any threat - from the government, the IRS or a frivolous lawsuit - is something The Nestmann Group has helped more than 15,000 Americans do over the last 30 years.
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