A Biden Presidency Could Undo Decades-Old Tax Breaks for the Rich: Report

October 19, 2020

Wealth managers are worried that a Joe Biden win in the upcoming presidential election would undo a variety of lucrative tax loopholes wealthy Americans have long relied on, according to news reports.

Biden has steered clear of the wealth tax promoted by his former rivals Elizabeth Warren and Bernie Sanders, but he’s likely to take aim at a number of breaks that have allowed the wealthy to reduce or avoid taxes on investment gains, Bloomberg writes.

In a February debate, Biden said it’s “wrong” that employees pay higher rates on their salaries than billionaires pay on their capital gains, according to the news service. And there are certain ways a Biden administration would work to change that.

Advisors are therefore concerned about how Biden’s proposals to eliminate certain tax benefits for clients might affect the way they work.

“These proposals will absolutely change how some money managers manage portfolios,” says Alison Hutchinson, managing director at Brown Brothers Harriman, told Bloomberg.

One major area for concern among advisors is that Biden has taken aim at the “stepped-up basis” rule, which helps wealthy families by eliminating taxable gains on inherited property, the news service writes.  

“The hardest thing for people to get their arms around is this possibility of not having a step-up in basis — that is such a drastic change in history,” says Marcum partner Edward Reitmeyer, according to Bloomberg. “It’s really kind of a game changer.”

But Biden also wants to raise the top rate on taxes collected from stock sales from 23.8% — which includes 20% on capital gains and a 3.8% charge put in place by the 2010 Affordable Care Act — to 39.6%, the news service writes. Craig Smith, president of Tiedemann Advisors, told Bloomberg that he’s “never seen so many conversations around this at one time.”

Wealthy investors are considering certain options to avoid higher taxes under Biden, Bloomberg writes. For example, they could avoid a possible tax increase next year by offloading appreciated stock before the end of this year, according to the news service. Craig Richards, director of tax services at Fiduciary Trust Company International, says his firm is talking to clients about making those sales by the end of the year — depending on what happens in November, Bloomberg writes. 

Other investors, meanwhile, may postpone tax loss harvesting, typically done with losing stocks at the end of the year to offset income, because “[t]hose losses could be worth a lot more next year,” says Stephen Baxley, director of tax and financial planning at Bessemer Trust.

On the other hand, while Biden has pledged to repeal Trump’s tax cuts on “Day One” of his administration, the coronavirus pandemic may delay any immediate action as another economic stimulus package takes precedent, Bloomberg writes. 

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By Alex Padalka
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