Capital Gains, Income or Estate Tax Changes: Which Would Have Biggest Impact?

(While the Biden plan includes an elimination of the step-up in basis, it does not change the estate tax rate or exemptions, which surprised some observers.)

To a Twitter follower who tweeted that a capital gains tax hike would dissuade middle-income taxpayers from starting (and later selling) small businesses, Levine tweeted in response: “It’s a fair point, though I think you’d see a dramatic increase in the use of installment sales to spread the gain over many years. Example: Sell your biz for $5MM and take a 7-year installment note and you’re going to be able to stay below the $1MM mark (barring other income).”

Responding to a follower who asked Levine which of the three potential changes would have the least negative impact (or most positive impact) on the economy and also be the fairest, Levine tweeted: “In a vacuum, estate/gift tax changes would have the biggest positive impact for the economy. It’s the only change that directly encourages more economic activity.”

Making a case for the estate tax having the biggest impact, Aaron Brickley, a certified financial planner and financial advisor at family RIA firm Brickley Wealth Management in San Mateo, California, tweeted: “Estate tax has the potential to impact more people, depends on whether step-up goes away and how drastic the exemption reduction is. I’m not sure how it doesn’t lead to people selling assets ahead of death to reduce [their] taxation and reduce taxable estate by way of tax payments.”

The “big winner” of all three potential tax changes is “complexity and those who benefit from it,” according to Tariq Dennison, wealth manager at GFM Asset Management. ”The big losers are simplicity and unity, two ideas American voters seem to have given up on long ago,” he tweeted.

Breaking away from the pack, however, Brandon Unger, business development and marketing manager at insurance firm Algren Associates in New York, tweeted his prediction: “I don’t think any of the proposed changes are that significant. What eventually gets signed will be even less so.”