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The (Possible) Future of Capital Gains

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October 08, 2019 | Barbara Baksa

The (Possible) Future of Capital Gains

Many of the Democratic presidential candidates have opinions about how capital gains should be taxed (some more strongly than others). With 19 candidates still in the race, summarizing all their positions is beyond what I can cover in a blog entry, but I can hit the highlights for you.

The Democrats

Overall, it’s safe to say that most of the Democrats are in favor of increasing capital gains taxes and other taxes on the wealthy. Here are the most notable positions taken by the candidates:

  • Increase long-term capital gains rates to match ordinary income tax rates (Booker, Klobuchar, Sanders, and many others)
  • Double the capital tax rates for incomes over $1 million (Joe Biden)
  • Impose a wealth tax (i.e., a tax on total net worth) for the richest Americans (Warren, Sanders, Buttigieg)
  • Tax capital assets annually, rather than only upon sale, subject to a $2,000,000 lifetime exemption (Booker)
  • End the step-up at death in the cost basis of inherited assets (Biden)

Of course, none of these proposals could be enacted through executive action alone; all would require legislation to be enacted by Congress. In his blog on Forbes.com, Bruce Brumberg of myStockOptions.com provides a nice summary of the candidate’s positions with links to sources for more information (“Capital Gains Tax Tug-Of-War: Democratic Presidential Candidates, Trump's Indexing, And IRS Forms,” Aug. 12).

Note that candidates' positions are still evolving and not all candidates have reported their positions; the above positions are accurate to the best of my knowledge, but you should do your own research before voting. My primary sources are Kiplinger (updated Oct. 4) and Politico (updated Aug. 18) and, where possible, the candidates' websites.

The Republicans

Unsurprisingly, Republicans are generally opposed to increasing capital gains taxes, wealth taxes, and other taxes on investments. Until early September, the Trump administration was considering using executive authority to index the cost basis of capital assets to inflation. For the moment, however, the proposal has been tabled due to its controversial nature.

Why This Matters

Employers have no reporting or withholding obligations with respect to capital gains, so this doesn’t directly affect stock plan administration procedures. But capital gains tax rates are likely to affect investment strategies for stock plan participants; higher long-term capital gains tax rates provide less of an incentive for employees to hold stock they acquire from their equity awards. In addition, higher capital gains tax rates reduce the advantages of tax-qualified vehicles, such as ISOs and ESPPs.

- Barbara

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