Their Kids vs. Your Kids

How to Rig an Economy


The new Republican tax code is set up to give the children of the wealthy a multi-million dollar head start on your kids. Through the estate tax, the stepped-up basis, and the 1031 exchange, they’ve built a system that ensures that your kids will NEVER catch up to their kids. Here’s how.

The Estate Tax

First, the new Republican tax code allows someone who has never worked a day in his life to inherit $22.4 million without ever paying a cent of taxes. That’s right. The new Republican tax code changed the taxes on estates so now Baby Silver Spoon can inherit $22.4 million and pay ZERO dollars in taxes while a working family making $77,000 will pay $7K of that in taxes.

The Stepped-Up Basis

The estate tax exemption isn’t even the worst of it. There’s an even bigger handout to the idle rich children of massive fortunes that is so obscure it’s almost a secret. No one ever talks about it, but we’re going to talk about it here because it’s absurd. It’s called the “stepped-up basis.” Here’s how it works:

Most big family fortunes aren’t held in cash, they’re all in assets like stocks. Now, normally when you sell stocks or other assets you only pay taxes on your profit, or the difference in price between when you first got it and when you sold it. But when those assets are passed down to an heir, that starting price gets reset without anyone ever paying any taxes on the increase in value during your life.

Say some business tycoon bought a group of stocks for $50 million, and those stocks grew in value to $90 million before he died. If he had sold those stocks he would have had to pay taxes on the $40 million increase in value. But he didn’t, and in his will, he passed the stocks onto his worthless son who never worked a day in his life, Donald. Donald sits on those stocks for a few years and sells them for $100 million. But instead of paying taxes on the $50 million increase from their original value, he only has to pay taxes on the $10 million increase since he inherited those assets. So no one ever pays taxes on $40 million in income.

This is how America’s richest families got to be America’s richest families. They just don’t pay any taxes on their dynastic wealth. Sam Walton never paid taxes on the increased value of his ownership stake in Walmart from zero to tens of billions of dollars, and now his children are five of the twenty richest people in the world. How is it fair that these people pay no taxes on millions of dollars in investment income while you pay taxes on the money you work for? It’s not.

The 1031 Exchange (Trump’s Favorite Loophole)

But wait, there’s more. The New Republican Tax Code has something in it specifically for wealthy real estate developers – imagine that! It’s called the 1031 exchange. 1031 exchanges, or “like-kind” exchanges, allow wealthy real estate developers to buy and sell a series of buildings over and over again without ever paying taxes ever. If they sell a property, they’re allowed to reinvest all that money, without paying taxes on it, into buying a new property. This allows real estate developers to avoid paying taxes indefinitely as long as they keep buying up new properties. And when that developer dies and passes those properties down to their children, guess what? The stepped-up basis means that all that untaxed wealth is now tax exempt. The developer’s heirs don’t have to pay a cent on the increase in value of their parent’s property holdings.

The 1031 exchange, when combined with the stepped up basis, means that families with large real estate holdings (like the one currently in the White House) can avoid paying taxes forever.

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