The run-up to the 2020 presidential election has entered a new phase, as caucus goers in Iowa become the first to voice their opinions directly about the candidates they like. Michael Bloomberg was a late entrant to the presidential race, and the billionaire has worked to try to tell voters about the way he'd approach key issues.
One major issue among candidates this election season is tax policy, with many suggesting reversing all or part of the tax cuts that took effect in 2018. Bloomberg released his tax plan over the weekend, and it would introduce a number of tax increases that would likely result in the candidate himself paying higher taxes. Below, we'll go through the key parts of the new Bloomberg tax plan.
1. Restore higher income tax brackets for the wealthy
The tax cuts in 2018 cut the top rate for high-income taxpayers from 39.6% to 37%. Bloomberg's plan would restore the 39.6% tax rate.
2. Add a new tax for multimillionaires
Bloomberg would also create a new tax for those making $5 million or more annually. The 5% surtax would apply both to employment income and to investment income, with the threshold affecting fewer than 1 in 1,000 taxpayers nationwide.
3. Raise long-term capital gains tax rates for millionaire earners
Currently, long-term capital gains get preferential treatment compared to most other types of income, with top-income taxpayers paying a maximum of 20% on gains from sales of investments held for longer than a year. The Bloomberg plan would tax those long-term capital gains at the same rates as other income for taxpayers making $1 million or more in income annually.
4. Boost taxes on transfers at death
Bloomberg is proposing several changes to the tax scheme that affects people at death. He would lower the amount of the estate tax lifetime exclusion amount, which currently lets most estates with $11.58 million or less in assets avoid tax entirely, by an unspecified amount. He would also end the practice of having the tax basis of investments reset at a person's death, essentially forcing heirs to pay greater amounts of capital gains tax upon selling inherited assets.
5. Increase corporate tax rates
The 2018 reforms cut top corporate tax rates from 35% to 21%. Bloomberg suggests splitting the difference and raising the corporate tax to 28%. The candidate would also work toward changing international tax rules to make it tougher to avoid U.S. tax in favor of lower-rate tax haven countries.
6. Work on closing other tax loopholes
The Bloomberg plan would more generally look for ways that the wealthy and others are able to reduce their taxes in a way that some find unfair. What Bloomberg calls loopholes include:
- The new pass-through deduction for income from certain businesses set up as sole proprietorships, partnerships, limited liability companies, and other noncorporate business entities.
- The like-kind exchange rules on real estate that allow deferral of gain on qualifying property exchanges.
- Preferential capital-gains tax treatment on carried interest in certain investment vehicles.
7. Strengthen the IRS
Finally, Bloomberg believes that cuts to the Internal Revenue Service over the years have resulted in a gap of $6 trillion to $8 trillion between the amount of tax that taxpayers owe and the amount of tax that the federal government actually collects. The candidate believes that with a relatively modest investment in beefing up the IRS workforce, it could collect hundreds of billions of dollars in unpaid tax.
Expect more tax talk
Bloomberg isn't the only presidential candidate talking about tax policy, with several candidates looking to take even more aggressive action to raise taxes on the wealthy. Even if his late campaign run doesn't end up gaining any traction, it's entirely possible that other candidates will borrow from Bloomberg's tax policy ideas as the race progresses. You'll want to keep those implications in mind as you do your 2020 tax planning this year.