WASHINGTON – President Biden’s plan to raise taxes for the high earners and the rich is likely to entice more wealthy Americans to donate property or other assets to charity before they die in order to avoid high tax burdens, a senior government official told last week nonprofit leaders host a private conference call.
When prompted, an associate director of Mr. Biden’s National Economic Council, David Kamin, was asked how the president’s tax plans would affect charitable donations – specifically, his proposals to change the tax treatment of investment income high earners receive from selling assets that have increased in value, such as companies or stocks.
The plan “actually increases the incentive to give to charity,” Mr. Kamin told the group. “And basically, if you don’t want to pay taxes on profits, you have to donate the property to charity.”
Further explaining the management’s rationale, Mr. Kamin said, “At this point it is obviously a non-profit organization.”
“We think it is appropriate that no taxes are paid at this point,” he continued. “But if you want to give it to your heirs or use it for yourself, you should pay taxes on those very large profits.”
The comments confirmed that Mr Biden’s proposals would encourage the wealthy to find new workarounds to reduce the amount of tax they or their heirs pay, especially on assets that grow in value over time, themselves when the president tries to balance the tax playing field between them typical workers and the very wealthy.
Mr Biden could have narrowed this workaround by proposing a ceiling on individual allowances for high earners, as he did in the campaign, but such a plan was not included in his $ 4 trillion economic agenda launched this spring.
White House officials said they had taken into account the potential increase in charitable donations in their internal estimates of how much revenue Mr. Biden’s plans will bring. These proposals include raising the highest marginal tax rate from 37 percent to 39.6 percent, raising income to a 3.8 percent tax that helps fund the Affordable Care Act, and a series of efforts to attract more people with Earn high income that they use to monetize their investments.
Officials haven’t detailed their estimates of how much money Mr Biden’s capital gains tax changes will bring in, even though Mr Kamin co-authored a 2019 study that estimated a less ambitious version of the proposal would bring in nearly $ 300 billion would be a decade.
The president did not encourage donations as he tried to sell his tax proposals, including $ 80 billion to step up enforcement efforts at the International Revenue Service to generate income from high earners and companies that illegally evade taxes – rather than exploit them legal ways to reduce them, such as donating to charity.
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Instead, Mr Biden has relied on his case that high earners can and should pay more to the government.
“We will not withhold a second or third home from any of these executives and travel privately by jet,” he said this week. “It won’t affect their standard of living at all. Not a tiny bit. But I can influence the standard of living of the people I grew up with. “
Administrative officials say Mr Biden proposed the series of tax increases he saw as best to fund his economic ambitions this year. This includes a broad proposal to invest in and upgrade physical infrastructure and what officials refer to as “human infrastructure”.
To fund his $ 1.8 trillion plan for education, childcare, and expanded tax credits, Mr Biden has proposed nearly doubling the capital gain rate for people who make more than $ 1 million a year. It would also remove a provision in the Tax Code that reduces the tax burden on assets that have grown in value over time and passed on to heirs in the event of death as part of a large estate.
Such steps would reduce the amount of money that high earners and the rich have available to donate to charity. But they would add value to donations because they would reduce a high-income donor’s tax liability faster.
“The proposal reflects the judgment that it is fair to change the way the very rich are treated when it comes to their big profits, which too often have gone untaxed,” said Kamin in an interview.
“There is a difference between giving an asset to charity and using it for yourself or giving or using it for your heirs, and that is reflected in the proposal.”
Many economists and tax experts agree that the net effect of the plans would be an increased incentive to donate.
“When I heard about this suggestion, the first thing that occurred to me was the potential avoidance through charity donations,” said Garrett Watson, senior policy analyst at the Tax Foundation, a Washington think tank that tends to do so praise benefits of lower taxes. “Higher tax rates mean the charitable donation deductibility is more valuable.”
Efforts to revise tax legislation often meet with applause or opposition from nonprofits that rely heavily on tax-deductible donations. Such groups closely watched Mr. Biden during the presidential campaign as he instituted plans to impose taxes on companies and people who earn more than $ 400,000 a year. Mr. Biden’s plans would also have capped the value of high-earning individual deductions to 28 percent, which would have reduced charitable tax breaks for many heavyweight donors.
Duke University published an online guide to Mr. Biden’s tax plans for their donors in November, stating that donating stocks and other assets that have won “to a nonprofit like Duke – have two powerful tax benefits can “. The president’s proposed increase in the capital gain rate for high earners, he wrote, “would mean that a charitable gift would avoid significantly more taxes, which is a great incentive for gifts of these valued investments.”
Patrick M. Rooney, an economist who is executive associate dean for academic programs at Indiana University’s Lilly Family School of Philanthropy, said Mr. Biden’s increases could also create a psychological incentive for people who have been pressured to Pass on assets to their heirs, but want to donate them.
“It gives you a way with the kids and the grandchildren,” he said. “‘I’m not going to give it to you because so much tax is deducted – and you can help me decide who to give it to.'”