Bill by Sen. Wyden Gets House Support, Targets Unrealized Gains
-- Family businesses and tax experts are taking a hard look at the new wealth tax bills recently re-introduced in the Senate and House of Representatives, both called the "Millionaires/Billionaires Income Tax Act."
The bicameral, "mark-to-market" proposals would tax annually unrealized gains on tradable assets, like stocks, while assets like real estate would be paid upon the sale of the asset. The bill also proposes to subject increases in a family business’s asset value to the wealth tax.
The Senate proposal, S.2845, was introduced by Sen. Ron Wyden (D-OR) while a House companion bill, H.R. 5427, was introduced by Congressmen Steve Cohen (D-TN) and Don Beyer (D-VA). When introduced, the Senate bill had over 21 co-sponsors. The House bill had 27 co-sponsors.
Similar versions of this bill have been proposed in prior Congresses and some provisions have been part of tax-revenue discussions in Congress for years.
Family Businesses Assess Impact
The bill purports to eliminate “tax loopholes,” provisions that currently allow successful family businesses and families to navigate the increasingly complex tax code and pay tax when gains and income are realized by the business.
The bill generally would force family business owners and successful individuals to treat their tradeable investments as if they were sold at the end of every year and impose tax on any gains even if no cash were realized.
While the bill defers the tax payment on non-tradeable assets until they are sold, the taxpayer could be subject to an interest charge for each year the gain is deferred. For non-tradable assets, such as real estate or private businesses, a deferred recapture tax would apply upon sale or transfer.
Backers of the bill contend the proposal aims to create a fairer tax system where the most successful Americans pay a tax rate and, in a timeframe, comparable to working families.
“Forcing family-owned businesses and successful individuals to pay tax on phantom gains is not only an unwarranted tax increase, but also a substantial increase in time and fees they must spend on complying with the tax code,” said Mark Warren, a shareholder at Brownstein Hyatt Farber Schreck in Washington, D,C., and tax-policy expert. “That’s wasted capital that family business owners desperately need to meet the current economic challenges of expanding their business,” he said.
According to research, America’s family-owned businesses contribute $7.7 trillion annually to the U.S. gross domestic product, accounting for 83.3 million jobs, or 59 percent of the country’s private workforce.
“If a wealth tax succeeds it will cause damage to some of the most successful family-owned businesses and employers in the country,” said Pat Soldano, President of Family Enterprise USA and Policy and Taxation Group. “Though we want a fair taxation system, family businesses are often most affected by such policies since they are already taxed at unfair rates compared to corporations,” she said. “Most family businesses are pass-through entities, unlike corporations, and have assets that would be directly taxed each year whether they realize a gain or not under this bill, driving many out of business just to pay this new tax.”
About the company: About Family Enterprise USA: Family Enterprise USA promotes family-owned business creation, growth, viability, and sustainability by advocating for family businesses and their lifetime of savings with Congress in Washington, D.C. FEUSA represents and celebrates all sizes, professions and industries of family-owned enterprises and multi-generational employers. FEUSA is a 501.C3 organization. About Policy and Taxation Group: Policy and Taxation Group (PATG) is the Voice in Washington, D.C., of Family Offices and Successful families. PATG is focused exclusively on the Tax and Economic Issues that impact them. Since 1995, PATG has been the leading advocacy group working to reduce and eliminate estate, gift, and GST taxes while blocking increased income and capital gains taxes, the creation of a wealth tax, and other hostile tax policies that punish hard work and success. PATG is a 501(c)(4) organization comprised of families directly or indirectly impacted by these harmful taxes and regulations.
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