Obama’s New Proposal Yields High Tax Rates

Before his State of the Union address to a Republican controlled Congress, President Barack Obama proposed $320 billion in tax hikes, throwing down a tax gauntlet.  His signature ideas would make community college free, extend sick leave to working families, and much more.  Among the ways the President would pay for this was to tax Section 529 plans. 

Because the backlash from this idea was so bad, it was quickly dropped.  However, the President has not backed away from the plan to raise the long-term capital gain rate to 28 percent for couples making more than $500,000 per year.   

The President plans to simplify our complex tax code and make it fairer.  One ‘loophole’ he says is egregious is step up in basis.  Though assets upon death may be subject to estate tax, the assets are stepped up to market value for income tax purposes.  Otherwise, one could pay both income and estate tax on the same dollar.  The President believes this basis step up is a scam wealthy people exploit and the current unified estate and gift tax exemption of $5.43 million per person is too high. 

The President’s new proposal would yield the highest estate tax rate in the world.  Stephen Moore of the Heritage Foundation calculates that by eliminating basis step up, we would end up with the world’s highest estate tax, and combined with inheritance taxes could go as high as 68 percent. 

See Robert W. Wood, Obama’s Proposed 68% Death Tax Would Be Highest In World, Forbes, Feb. 3, 2015.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.