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Biden's Tax Proposals Could Increase Life Insurers' Value

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What You Need to Know

  • The Biden administration has described the proposed changes only in vague terms.
  • One phrase implies an estate valuation change could help charitable planners.
  • Michael Finke says the changes could make life and annuity issuers more valuable.

The Biden administration has given only general descriptions of the mechanisms it might use to pay for new American Families Plan programs, such as free community college tuition.

Some personal finance specialists who have read the administration’s proposal fact sheet say the revenue-raising provisions that are included could be great for life insurers.

Michael Finke, professor of wealth management at the American College of Financial Services, tweeted about the possibilities Thursday.

Finke predicted the proposed increase in the top capital gains tax rate — to 39.6%, from 21%, for households making more than $1 million — and a proposed requirement that taxpayers include growth in an asset’s value when they inherit the asset, would lead to more use of life insurance and annuities to soften the impact.

Administration officials say they plan to design the new tax rules to protect family-owned farms and family-owned businesses.

The new rules will make sure “the gains are taxed if the property is not donated to charity,” according to the fact sheet.

The reference to charity implies that taxpayers could reduce taxes on gains by donating property to charity.

Curious George, someone who tweets about economics anonymously, suggested that, under the rules described in the Biden proposal, a taxpayer could donate $10 million to charity, wipe out income tax liability, and end up with $10 million in cash and a $1 million asset.

A taxpayer could donate $10 million to charity for just $300,000, and, once state tax was included, a taxpayer who gave $10 million to charity could end up with more wealth than someone who gave nothing to charity, Curious George said.

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