According to the statement, the Biden administration proposes that on top of the old death tax, which is assessed on estates, the federal government should add a new tax on the deceased’s last 1040 personal-income-tax return. Unfortunately, the second tax would apply to tens of millions of Americans. How this works – the Biden administration is proposing to tax the capital gains on a person’s property when they die, even if the assets that account for those gains haven’t actually been sold.
This is unfair, because potential income from a house or a stock is not real income one owes taxes on until a sale happens and one has cash in hand. But to make things even worse, the administration also supports raising the top tax rate on long-term capital gains from 23.8 percent to 43.4 percent.
When state capital-gains-tax rates are factored in, this would make the combined rate at or above 50 percent in many places — the highest capital-gains-tax rate in the world, and the highest in American history.
After these unrealized, unsold, phantom gains are subject to the new 50 percent double death tax, there is still the matter of the old death tax to deal with. Imagine a 50 percent death tax followed by a 40 percent death tax on what is left, and you get the idea.
This 50 percent double death tax would apply to all capital gains over the exclusion amount, including those derived merely from inflation. A middle-class family who bought a vacation home in 1980 for $100,000 and has seen its value rise to $500,000 today knows that a lot of that growth is due to inflation alone. In fact, adjusting for inflation would reduce the gain in this example from $400,000 to just $150,000. Both the old and the new death taxes will tax merely phantom inflation gains.