This week, Democratic presidential candidate and former New York City Mayor Michael Bloomberg released his plan to increase taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es on businesses and wealthy individuals, which he estimates will raise $5 trillion to pay for various policy programs such as infrastructure, health care, and education. Like many of the presidential candidates, his proposal includes tax rate increases and walks back provisions enacted under the Tax Cuts and Jobs Act (TCJA)The Tax Cuts and Jobs Act in 2017 overhauled the federal tax code by reforming individual and business taxes. It was pro-growth reform, significantly lowering marginal tax rates and cost of capital. We estimated it reduced federal revenue by .47 trillion over 10 years before accounting for economic growth. . However, his proposal does not include a wealth taxA wealth tax is imposed on an individual’s net wealth, or the market value of their total owned assets minus liabilities. A wealth tax can be narrowly or widely defined, and depending on the definition of wealth, the base for a wealth tax can vary. or a financial transaction tax, unlike the tax proposals of several of his opponents.
Under Bloomberg’s tax plan, several changes made by TCJA would be reversed: the top individual income taxAn individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S. rate would be increased from 37 percent to 39.6 percent and the corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. rate would rise from 21 percent to 28 percent. The Section 199A pass-through deduction would also be eliminated. Repealing reforms like the corporate income tax rate cut would reduce the competitiveness of the United States, and it’s important to note that this change in particular would burden taxpayers across the income spectrum, not just the wealthy, as labor bears a significant portion of the corporate income tax. The plan would also raise the minimum tax on foreign income and apply it on a per-country basis, among other changes to rules related to international taxation.
Bloomberg would tax income from capital gains , which is currently subjected to lower tax rates when gains are held for more than one year, to ordinary income tax rates for taxpayers with $1 million or more in income. His plan would also end step-up in basisThe step-up in basis provision adjusts the value, or “cost basis,” of an inherited asset (stocks, bonds, real estate, etc.) when it is passed on, after death. This often reduces the capital gains tax owed by the recipient. The cost basis receives a “step-up” to its fair market value, or the price at which the good would be sold or purchased in a fair market. This eliminates the capital gain that occurred between the original purchase of the asset and the heir’s acquisition, reducing the heir’s tax liability. for capital gains. Under current law, when a property owner dies and transfers assets to heirs, the cost basis of those assets is increased, or stepped up, to their fair market value, thereby reducing the capital gains taxA capital gains tax is levied on the profit made from selling an asset and is often in addition to corporate income taxes, frequently resulting in double taxation. Capital gains taxes create a bias against saving, leading to a lower level of national income by encouraging present consumption over investment. liability on property that’s passed down to an heir. Additionally, Bloomberg’s plan would lower the estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. threshold, subjecting more estates to the tax, though the new tax threshold has not been provided.
On top of this, Bloomberg proposes a new 5 percent surtaxA surtax is an additional tax levied on top of an already existing business or individual tax and can have a flat or progressive rate structure. Surtaxes are typically enacted to fund a specific program or initiative, whereas revenue from broader-based taxes, like the individual income tax, typically cover a multitude of programs and services. on income (both from capital and labor) above $5 million. He would also end like-kind exchanges and tax carried interest as ordinary income.
Bloomberg’s tax plan would increase the tax burden on saving, investing, and working in the United States while reducing the global competitiveness of the U.S. economy.
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