Will A New Wealth Tax Affect Floridians?
On March 1, three members of Congress unveiled what they called the Ultra-Millionaire Tax (UMT), intended to “create a fairer economy.” Sen. Elizabeth Warren (D-Mass), Rep. Pramila Jayapal (D-WA-07), and Rep. Brendan Boyle (D-PA-02) unveiled their plan, intending a 2 percent annual tax on the net worth of households and trusts valued between $50 million and $1 billion, plus “strict anti-avoidance measures.” While Florida has robust laws against the imposition of certain kinds of taxes, this only applies to the state level, not the federal. It remains to be seen whether the UMT will pass, but if it does, it is understandable that you may have questions on how to minimize your tax burden, especially when estate planning.
A Hotly Debated Issue
Few would doubt that income inequality in the United States is among the highest in the world. A 2020 study from the University of California-Berkeley reports that the top 0.1 percent has seen their income rise from 7 to 20 percent since 1970, while the bottom 99.9 percent have seen their income share decline from 35 to 25 percent during the same time period. Given the holes in U.S. infrastructure, particularly those made even worse by the COVID-19 pandemic, it may seem like a no-brainer to impose a tax on the handful of families that make such enormous amounts of money.
There are, of course, those who oppose such a measure, for a variety of reasons. Some conservative legal scholars believe that such a measure would be unconstitutional, though this has been the subject of intense debate. Others fear potential capital flight from the United States if the UMT passes. Others may simply not believe they should be subjected to such a tax. If the UMT does pass, it is understandable that those of high net worth may seek to minimize their tax burdens in any appropriate way.
Difficult To Avoid
When one is looking to lower their federal income tax burden, for example, it is sometimes possible to keep one’s money in certain types of accounts or other instruments where they are temporarily or permanently tax-exempt. Some of the most commonly used options are to max out contributions to one’s retirement account, or take long-term capital gains, where possible. However, if passed, the UMT contains certain enforcement provisions that might make it difficult to avoid, even if you believe that your situation would be exceptional enough to do so.
If the tax becomes law, it would come along with enforcement provisions designed to eliminate some of the most common methods that people use to evade taxation. The bill grants $100 billion to “rebuild and strengthen” the Internal Revenue Service (IRS), as well as mandating a 30 percent minimum audit rate for those subject to the UMT and new asset valuation tools to help get a clearer picture of a taxpayer’s financial picture. Perhaps most important of all, those who might seek to renounce their U.S. citizenship to avoid taxation would be subject to a 40 percent “exit tax” on any net worth over $50 million. With a ‘rebuilt and strengthened’ IRS, one must conclude that these measures would have some proverbial teeth.
Contact A Naples Estate Planning Attorney
If you have questions, concerns or just want to set up a complimentary consultation to discuss your personal legal issues in a confidential setting, contact James R. Nici, the Managing Partner of Nici Law Firm, a Naples estate planning attorney with almost 30 years of legal experience. This may be the first step toward ensuring all is how you want it to be going forward. Contact our offices today via our website, or on the telephone at 239-449-6150, to schedule your complimentary consultation.