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Chris Christie exaggerates about Joe Biden capital-gains tax proposal
If Your Time is short
• The White House is proposing a series of new taxes that could hit large inheritances in a significant way. But Christie is wrong to frame these as hitting “any family” passing down a business within the family.
• The White House says it will explicitly rule out this possibility when the formal legislation is written. But even if such protections aren’t enacted, the increased taxation would hit only a small number of very wealthy families.
One of the most durable arguments made by Republicans is that they stand united against tax-hike proposals made by Democrats.
Recently, former New Jersey governor and 2016 presidential candidate Chris Christie took aim at one of President Joe Biden’s tax proposals.
"You’re going to see a lot more focus on the huge increase in the family business tax that Joe Biden is proposing — that any family who tries to pass a business or a farm down to their son or daughter or grandson or granddaughter are going to pay a huge new tax, and going to be forced to potentially sell their farm, sell their business to pay that tax," Christie said during a May 2 appearance on ABC’s "This Week."
There’s something to what Christie says, but he’s exaggerated the scope of the impact. (Christie’s office did not respond to an inquiry for this article.)
The tax increase Christie is referring to stems from Biden's proposed American Families Plan, which includes investments in free early childhood education and community college, as well as investments and tax cuts for families with children.
To help pay for the new spending proposals, Biden would raise certain taxes that hit wealthier households. (The tax hikes appear to fit within Biden’s promise not to raise taxes on American households earning less than $400,000 a year.)
First, Biden would increase the top marginal tax rate — the one levied on the last dollars earned by the wealthiest taxpayers — from its current 37% to 39.6%, which was the top rate until President Donald Trump signed a major tax law in 2017. For 2021, this top rate is set to kick in at $523,601 for individuals and $628,301 for married couples filing jointly.
In addition, Biden proposes having households making over $1 million pay that 39.6% rate not only for ordinary income, but also for capital gains. Capital gains — which are the profits earned from the sale of an asset — are currently taxed at a maximum of 20%, plus an existing 3.8% tax called the net investment income tax.
Finally, Biden proposes changing the rules about how to tax unrealized capital gains — the appreciation in value of an unsold asset — when the owner dies and passes the asset to heirs.
Currently, wealthy families can pass an asset, such as stocks or art, to their heirs tax-free as long as their gains are unrealized — that is, if the items aren’t sold. The Biden administration argues that this allows wealth to accumulate untaxed for generations, increasing inequality.
Biden would impose a tax when a family passes down assets with unrealized capital gains. The proposal would shield the first $1 million in unrealized gains, or $2.5 million per couple when combined with existing real estate exemptions.
When you put all these proposals together, Biden wants to tax unrealized capital gains above $1 million on assets being passed to heirs, at a 39.6% rate. Under current law, those unrealized gains would not be taxed at all. (A footnote: None of these changes involve the estate tax, which is levied on large estates after death. Biden has not announced any changes to the estate tax.)
So Biden’s proposals may entail some big tax bills for very large asset transfers. But how common would these be?
Christie goes too far when he says that "any family" would get hit by these tax hikes when passing assets to heirs.
For starters, in announcing its proposal, the White House said that "the reform will be designed with protections so that family-owned businesses and farms will not have to pay taxes when given to heirs who continue to run the business."
The White House told PolitiFact that "so long as the business stays in the family, there will be no tax due."
If that policy makes it into law, then Christie’s assertion would be flat wrong.
Since no legislation has been drawn up yet, we’ll grant Christie a bit of space to speculate about how the policy could evolve.
The more problematic side of Christie’s claim is that only a tiny number of extremely wealthy households would be affected in any given year — not "any family," as he says.
Federal Reserve data showed that in 2018, only 3% of households had more than $1 million in unrealized gains, according to calculations by Robert McClelland, a senior fellow with the Urban Institute-Brookings Institution Tax Policy Center. If any of those households sold assets, and realized those capital gains, to fund their retirement, the share would be even smaller, he said.
Other data backs up the idea that the number of businesses at risk would be small.
About 92% of businesses have annual revenues less than $1 million, and some fraction of those above that threshold are publicly held and thus not subject to Biden’s tax changes.
The connection between a particular business’s annual revenues and its value if it were sold varies widely by industry sector and other factors. But on average, businesses sell for 0.6 times annual revenue, according to BizBuySell, a national business marketplace.
These numbers do suggest that the vast majority of American businesses are relatively small in value, and the smaller a business is, the more likely it is to escape any impact from Biden’s tax changes. Certainly, Biden’s proposals wouldn’t affect "any family" passing a business to the next generation.
As for farms, McClelland said that when he was working for the Congressional Budget Office in 2005, his office published a report that identified only 1,659 estates of farmers in 2000 that had assets worth more than $1 million, out of some 2 million farms total at the time. That’s less than one-tenth of 1% of all farms.
Even if the number of farm estates worth more than $1 million has mushroomed 100-fold in the 21 years since, that would still be just 8% of all farm estates.
And given that taxes would be levied under Biden’s proposal only if the difference between the current value of the assets and the purchase price exceeded $1 million, and only when the asset changes hands, the number at risk of being taxed at any given time would likely be even smaller still.
Christie said, "Joe Biden is proposing that any family who tries to pass a business or a farm down to their son or daughter or grandson or granddaughter are going to pay a huge new tax."
Biden is proposing a series of new taxes that could hit large inheritances in a significant way. But Christie is wrong to frame these as hitting "any family" passing down a business within the family.
The White House says it will explicitly rule out this possibility when the formal legislation is written. But even if such protections aren’t enacted, the increased taxation would target only a small number of very wealthy families, since few businesses and farms have unrealized capital gains of $1 million or more.
We rate his statement Mostly False.
Chris Christie, remarks on ABC’s "This Week," May 2, 2021
White House, "Fact Sheet: The American Families Plan," April 28, 2021
Tax Foundation, "Joe Biden’s 61 Percent Tax on Wealth," April 29, 2021
Tax Foundation, "2021 Tax Brackets," Oct. 27, 2020
Urban Institute-Brookings Institution Tax Policy Center, "Avoiding Biden’s Proposed Capital Gains Tax Hikes Won’t Be So Easy. Or Will It?" April 30, 2021
NAICS Association, business data, accessed May 4, 2021
U.S. Agriculture Department, "Farming and Farm Income," accessed May 4, 2021
Penn Wharton Budget Model, "Revenue Effects of President Biden’s Capital Gains Tax Increase," April 23, 2021
Email interview with Garrett Watson, senior policy analyst at the Tax Foundation, May 4, 2021
Email interview with Robert McClelland, senior fellow with the Urban Institute-Brookings Institution Tax Policy Center, May 4, 2021
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Chris Christie exaggerates about Joe Biden capital-gains tax proposal
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