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Marine One departs from the Ellipse after dropping off President Biden on Sunday. Photo: Tasos Katopodis/Getty Images

President Biden is committed to increasing capital gains taxes for the richest Americans when they die, before they pass wealth to their heirs, according to people familiar with the matter.

Why it matters: Eliminating the so-called stepped-up basis is central to Biden’s plan to find additional revenue to pay for the roughly $1.5 trillion in new spending he'll unveil during a major speech Wednesday night.

  • “It is important to tax gains at death when you raise the maximum capital gains tax rate,” said Leonard Burman, of the Urban Institute's Tax Policy Center. “Otherwise, rich people would go through contortions to hold assets until death and avoid the 43.4% (plus state tax) rate.”
  • “If you are also ending step-up basis at death (as Biden proposes), the revenue-maximizing rate is much higher — plausibly above 43.4%,” wrote Jason Furman, a Council of Economic Advisers chairman for President Obama, wrote on Twitter.
  • The proposal is estimated to raise some $370 billion, but only if the stepped-up basis is eliminated.

The intrigue: During the campaign, Biden proposed increasing estate taxes from 40% to 45%, while also dramatically decreasing the exemption from tax-free inheritances from $11 million to $3.5 million.

  • During the president's first 100 days in office, White House 0fficials have been silent if Biden will actually propose changes to the estate tax in his next package.
  • Using the stepped-up basis means that when assets are passed to an heir, they are reassessed — for future tax purposes — at their current value.
  • In practice, that means an asset's increase in value is never taxed as capital gains in the original owner's lifetime, though estate taxes could still apply upon the owner's death.

Driving the news: Ahead of Biden’s joint address to Congress, officials are stressing his plans are designed to target the ultra-wealthy.

  • It’s “not the top 1%, it’s not even the top one-half of 1%,” Brian Deese, the director of the National Economic Council, said of the president's capital gains proposals.
  • Deese also sought to rebut arguments that nearly doubling the capital gains rate would slow economic growth.
  • “There is no evidence of a significant impact of capital gains rates on the level of long-term investment in the economy,” he said.

By the numbers: Biden’s plan to tax capital gains at the same rate as income could actually increase the deficit, according to research by analysts at the University of Pennsylvania Wharton Budget Model.

  • Increasing the top capital gains rate from 20% to 39.6% could cost the government $33 billion over 10 years if the stepped-up basis remains law.
  • But if the stepped-up basis is eliminated — and assets are taxed at death before they are passed on — the IRS would collect $113 billion.

Go deeper: There’s a debate among economists about what the revenue-maximizing rate for capital gains should be, even if the stepped-up basis isn’t eliminated.

  • The consensus had been in the 28% to 32% range, according to David Herzig, a tax principal with Ernst & Young's private client service tax practice.
  • But those calculations would need to be reconfigured if the stepped-up basis is taken off the books.
  • “In the absence of stepped-up basis at death, we estimate that it would be in the low 40s,” said John Ricco, associate director at the Penn Wharton Budget Model.

Go deeper

Top Biden economic adviser confirms plan to double capital gains tax

President Biden in the Roosevelt Room on April 12. Photo: Amr Alfiky-Pool/Getty Images

Brian Deese, director of the National Economic Council, formally announced President Biden's plan to nearly double the capital gains tax as a means to fund massive economic proposals at Monday's White House press briefing.

Why it matters: Deese stressed that Biden's proposal to raise federal taxes on sold assets and investments would not affect most households.

Biden's next 100 days

Photo: Andrew Harnik/AP

President Biden spent his first 100 days trying to engineer the end of the coronavirus and start of a job boom. The next 100 are more audacious and risky: Try to re-engineer the very fundamentals of America — inequality, voting rights and government’s role in directing economic growth.

Why it matters: Biden advisers feel they have a huge opening to raise taxes and pick winners in the energy markets, in part because Republicans and business no longer lock arms — and wallets — in opposition to the reordering of capitalism.

Ben Geman, author of Generate
25 mins ago - Energy & Environment

A $1 billion plan to deploy clean power in developing nations

Illustration: Eniola Odetunde/Axios

Two foundations just unveiled a $1 billion initiative to help deliver clean energy to huge numbers of people worldwide who lack electricity access — and they hope it catalyzes vastly more outside capital.

Driving the news: The Rockefeller and Ikea foundations said the new program "aims to reduce 1 billion tons of greenhouse gas emissions and to empower 1 billion people with distributed renewable energy."