In his State of the Union message, President Obama called on Congress to raise taxes on the wealthy and on large financial firms to pay for middle class tax cuts. Most of the plan’s funding would come from an increase in capital gains taxes and an end to the step-up in basis for inherited wealth.
Mr. Obama would eliminate what some have called the “angel of death loophole”by taxing capital gains at death rather than allowing a basis step up when assets pass to heirs, as under current law. The first $100,000 in gains would be exempt for single people ($200,000 for couples), with an additional $500,000 exemption for the home. There would be special rules to protect small businesses, and gifts to charity would be exempt.
The White House proposal would also raise the top capital-gains tax rate to 28 percent from 23.8 percent for couples with incomes above $500,000 a year.
It is highly unlikely that Mr. Obama expects a Republican Congress to turn his bid to make the tax system more progressive into legislation he would sign, but it does begin a conversation that could prove useful for Democratic candidates in 2016.
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