Joe Biden Needs Grey Poupon To Put On His Jeff Bezos's Children Steak

Pardon you? No, Don't think he will!

One of the things I like about my job, in addition to the alligator weed stripper pole stories, is having the chance to learn about things I'd never heard of, like this one weird trick the Biden administration would like very much to do away with, because it is a Tax Avoidance for Rich Fuckwads trick. Here's the deal: Thanks to a thing called the "stepped up basis" loophole in inheritance law, people can inherit huge amounts of assets without paying hardly nothing in capital gains taxes. It's a really fun trick that would never occur to those of us whose heirs can expect to get 1) a 1973 Chevy Impala with personalized "VLAD" plates and 2) a whole lot of My Little Pony collectable figures.

And as Bloomberg the news site explained Tuesday, that means the heirs of, say, world's richest hu-mon Jeff Bezos stand to inherit $36 billion less if Biden is able to repeal the one weird trick than they would if the one weird trick remains in place:

Under current rules, whoever inherits the Amazon shares Bezos bought in 1994 for $10,000, worth $180 billion today, will receive a so-called step-up in basis, wiping out any capital gains tax liability. Biden's plan would close that loophole and apply the top capital gains tax immediately when assets transfer to wealthy heirs. If the rate increases -- it's 20% for holdings like Bezos's, and Biden has called for boosting it to 39.6% -- the eventual tax bill would too.

(The article doesn't discuss the wealth transfers of Bloomberg the hu-mon and billionaire, for some reason.) Getting rid of the loophole, the piece says, combined with the higher cap gains rate, "would amount to the biggest curb on dynastic wealth in decades, altering an American economic landscape dominated by a few wealthy families." Well then, let's do that, because we never got into dynasties, not even the ones with hilarious over-the-top fights between rich ladies near swimming pools.

Basically, the loophole — which is entirely separate from the inheritance tax — works by allowing assets that people leave to their heirs to have their "original cost basis" adjusted. Let's say my mom had had the good sense to buy me a copy of Amazing Spider-Man #1 when I was a toddler, and that it had been kept in perfect shape in a vault somewhere. The best-quality copies now go for something like $300,000 at auction, so if I sold it, I'd need to pay capital gains tax of 20 percent on the full amount, less the 22-cent original investment.

But right now, if I leave my (purely notional) comic book to my Kid and I die from a radioactive spider bite, the "step up in basis" loophole pretends the original value of the comic was $300,000. Assuming the law stays the same and Kid sells it for $350,000 in two years, then they'd only pay cap gains on the $50K in new value after I kick it. That's the sort of fuckery Biden's proposal would avoid, so I bet Kid is relieved I don't have any extremely rare silver age comics kicking around. They won't have to deal with the hassle. (Vlad the Impala's current market value fluctuates depending on how full its gas tank is.)

Bloomberg notes that the "rule also applies to Amazon shares, which have risen more than 200,000% since a 1997 public offering, as well as other appreciated assets." So if Biden closes the loophole and raises the capital gains tax, that's why Bezos's heirs would stand to pay $36 billion in cap gains taxes. How sad is that?

This thing that I'd never heard of until today is a major driver of wealth inequality, it turns out:

The Joint Committee on Taxation, a nonpartisan arm of Congress, estimates that untaxed capital gains on inherited assets run into the hundreds of billions of dollars a year. About half of unrealized gains belong to the wealthiest 1%, according to an analysis of data in the Federal Reserve Board 's Survey of Consumer Finances. And unrealized and accrued capital gains account for about 40% of the wealth of the top 1%, the Fed data show.

Also, fun trivia fact: Some estate planners call the step-up rule the "Angel of Death loophole," which frankly makes estate planners seem far more fun to hang out with than they probably are.

Thing is, for Biden's proposed capital gains tax increase to really work, the loophole probably has to be nuked, too, both because Fuck Those Guys and also more practical concerns.

Otherwise, economists project that the proposed increase in the top capital gains tax rate would further encourage holding assets until death, decreasing revenue for the Treasury.

Now, there have been murmurs, especially from business interests, who certainly murmur from a place of good faith, that this would be terrible for small manufacturers or family farmers, since the resulting capital gains taxes might leave heirs with so little that they'd need to sell the business or the farm. To head off that scenario, Biden's plan would exempt the first million dollars from cap gains, and would also completely exempt family farms and small businesses, as long as the inheritors keep them in operation.

So is this going to happen? The odds seem long in Congress, since the very wealthy have lots of lobbying power, and pols in both parties tend not to want to upset the donor class. Then again, the idea that Jeff Bezos's heirs might have a bit less free money at the taxpayer's expense may look awfully attractive to a lot of people, not just those of us who forgot to buy a pallet or two of Howard the Duck #1 in junior high.

[ Bloomberg / The Balance ]

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