By Neil Pacifico
Now that universal basic income is getting closer to reality and the government has spent trillions in relief packages to subsidize a problem they created, it’s only natural for the government to look for ways to fund their reckless and uncontrolled spending. “Tax the rich” is their popular slogan, but their sights aren’t set on just the ultra-wealthy or the top 1 percent.
The proposed elimination of the “step-up” in cost basis (a big part of the “American Families Plan”) would drastically hurt how any generational wealth is built in this country. For the majority of Americans stuck in the lower middle class, inheriting property or stock is one of the only ways they will ever be able to retire with any financial security. With the elimination of stepped-up basis, all Americans making under $400K would see a large tax bill when they go to sell certain inherited assets.
“Cost basis” is the original value or purchase price of an asset or investment. As the law stands today, when a relative is deceased and assets (such as their home or stocks) are inherited, the value of inheritance is based not on what they originally paid for the home, but rather what the current fair market value is on the date of death.
This stepped-up cost basis will greatly reduce capital gains tax liability, especially when choosing to quickly sell the inherited property or stocks, because such taxes are calculated on the difference between the cost basis and the current market value at the time of the sale. (See our example chart here.)
This is of great benefit to many caregivers of elderly relatives, as they have often forsaken their careers to care for their loved ones. But many misinformed millennials (and Biden voters) who are counting on inheriting their retirement funds from the baby boomers they’re caring for will be in for a rude awakening (and a big capital gains liability) if the step-up in cost basis is eliminated.
TRENDPOST: The American Families Plan also calls for drastic increases in capital gains tax rates, which will further divide the classes and create even more of a wealth gap.
