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5 Things You Should Know About Obama’s Proposed Death Tax

Earlier this month, President Obama unveiled his proposed budget for 2016. Just shy of $4 trillion, the budget includes new tax legislation that would raise the funds needed for an 11% spending increase. Past of this tax legislation is an additional estate tax that has received harsh criticism from the President’s opponents. Here are five things you should know about Obama’s proposed death tax and what will happen if it becomes law.

What the Death Tax Means for Americans

1. If it is passed, the U.S. will have the highest death tax in the world.

Numerous countries, such as Russia, Sweden, and China, do not imposed a death tax on their citizens. Among countries that do have one, Ernst and Young reports, only France, Belgium, Venezuela, Switzerland, and South Korea currently have a higher estate tax than the U.S. If passed, the President’s law would bring death taxes in the U.S. as high as 68% in some states—higher than any country in the world.

2. Beneficiaries will be required to pay an additional capital gains tax on inheritance.

Current law uses what is known as the “step-up basis at death” to determine capital gains taxation on inheritance. This means that beneficiaries are not taxed for any valuation increases that may have occurred since property was acquired by the deceased family member.
The new law would apply a capital gains tax to inherited property, effectively taxing the same property twice—once during the lifetime of deceased, and a second time when the property is passed to the beneficiary.

3. The rate of capital gains tax will increase, making the death tax even harder hitting.

This would be the second time President Obama has raise the rate of capital gains tax. In his 2016 budget, Obama proposes raising the rate to 28%--almost double what it was when he took office. This new rate includes the 3.8% surtax on capital gains from Obamacare.

4. The death tax won’t just affect the wealthy.

When targeting the wealthy, the Obama administration has called the step-up basis at death currently used "the single largest loophole in the entire individual income-tax code." But wealthy Americans wouldn't be only ones affected by the death tax. Under current law, estate valued under $5.43 million are exempt from taxation. The new law would impose a capital gains tax on everything over $100,000 for singles or $200,000 for couples.

5. Opponents say that the death tax will destroy family-owned businesses.

Dick Patten, chairman of the American Business Defense Council, has warned that “if taxes were ever to get this high, most family businesses would have to be sold at the time of death in order to pay the taxes owed.” Forbes contributor, Robert Wood has pointed out that many family businesses already struggle to stay afloat after a founder’s death and are often sold because of high taxes.