Meghan Markle dilemma: Joe Biden could cause major difficulties for Sussexes
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Currently in the US, long-term capital gains taxes ‒ the tax levied on profit from the sale of a property or investment ‒ are much lower than that on personal income. The top rate for long-term capital gains is 20 percent, while the top rate for personal income is nearly double that at 37 percent ‒ but Mr Biden wants to equalise these by raising capital gains tax. The Democratic nominee has proposed that the top rate of income tax should be raised from 37 percent to 39.6 percent and the top rate for capital gains should rise from 20 percent to 39.6 percent.
He teamed up with Senator Bernie Sanders earlier this year to form a task force that released a 110-page policy document of their plans.
In the document, the task force said their plan is to “use taxes as a tool to address extreme concentrations of income and wealth inequality.
“A guiding principle across our tax agenda is that the wealthiest Americans can shoulder more of the tax burden, including in particular by making investors pay the same tax rates as workers and bringing an end to expensive and unproductive tax loopholes.”
Meghan and Harry, having just signed a huge deal with Netflix estimated at $150million (£113million) and already possessing significant personal wealth, will surely fit into the category of some of the wealthiest people in the US.
This change means that if, for example, Harry and Meghan’s Montecito mansion goes up in price or any stock or other asset they own goes up in price, they could be liable to pay far more tax in a Biden administration than a Trump administration.
Nevertheless, it is believed that the Duke and Duchess of Sussex are supporting Mr Biden in the election, given Meghan’s previous comments about Donald Trump.
The Duchess branded Mr Trump “misogynistic” and “divisive” in 2016, and this year encouraged people ‒ particularly women ‒ to vote.
She told her followers that if they choose not to vote they are “complicit”.
What’s more, Prince Harry has a personal relationship with Mr Biden, because the former Vice President and his wife Jill have been fervent supporters of the Invictus Games since its inception.
Tax and immigration expert David Lesperance told Express.co.uk that the current tax system vastly favours investors over those who earn a salary.
He compared the income of Warren Buffet ‒ American investor and business tycoon, CEO of Berkshire Hathaway ‒ and that of his assistant.
He said: “When they say Warren Buffett pays a lower rate of tax than his assistant, they are absolutely right because Warren has mostly capital gains, so he is paying at 50 percent of the rate than his assistant is.
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“Of course, he can then ask the follow-up question: ‘Would you rather the lower tax rate of Warren’s billions or the ordinary tax rate of $100,000?’
“What the democrats have said as part of their platform ‒ at a minimum ‒ is that they want to eliminate this differential between capital gains and ordinary tax rates.
“So what that means is for Warren Buffett is, he is going to pay effectively twice as much tax as he did last year.”
However, he added that Mr Biden will not be able to unilaterally raise this tax, even if he becomes President.
A change in the tax system would need to be ratified by both the House of Representatives and the Senate.
This is a problem Barack Obama had as President ‒ he only had two years in which Democrats had control of both the House and the Senate, and in the final two years Republicans had control of both.
This meant he experienced significant pushback to many of his policies, resulting in a political stalemate at times, where he was unable to pass key legislation.
Mr Lesperance said: “In a parliamentary system, if the House of Commons says ‘right capital gains will not be equalised with income ‒ assuming the House of Lords doesn’t go bananas and assuming the Queen doesn’t refuse to give royal assent ‒ it will be law.
“If Joe Biden says ‘we want this situation’ it has to pass two levels ‒ the House of Representatives, the parliamentary equivalent of the House of Commons, and the Senate, the equivalent of the House of Lords.
“But the Senate is much more active in knocking down things, traditionally, than the House of Lords or the Senate in the Canadian Parliament ‒ they’ve got Mitch McConnell.
“So if Biden wins the presidency and Democrats remain in control of the House with Nancy Pelosi, but the Republicans with Mitch McConnell maintain the Senate, then there’s not going to be a new tax policy.
“But it’s an increasing possibility that the Democrats will sweep all three.”
What’s more, there are a few exemptions in what people pay capital gains tax on.
For example, there are slightly different rules for a person’s primary residence, in that they are allowed $500,000 (£387,000) of tax free capital gains on their home if they are a married couple, which Harry and Meghan obviously are ‒ and $250,000 (£193,000) if they are single.
This means that if Meghan and Harry sold the home they bought for $14.7million (£11.4million) for $15.2million (£11.8million), they still would not pay any capital gains on it.
Mr Lesperance said: “If Biden has his way, if Meghan as a US person and little Archie, who is a US citizen too, make some capital gains or income it will be taxed at the same rate.
“Then we look at homes. The one thing people have that generally appreciates in value is their home.
“And most countries, because it’s housing ‒ you can’t sleep under 100 shares of Apple ‒ most countries have special rules relating to capital gains taxation of a home.
“So for the US, depending on the state, they will say ‘you bought this for $14.7million?’
“The US says if, when you sell it and you sell it at a loss, well then there’s no capital gains, but let’s say you sell for $500,000 more, the US says we still don’t tax the first $500,000 of capital gains on your principal residence.
“Oh, you’ve also got a cottage here and a condo here? Those are all secondary residences, you only get the exemption on your primary residence, but then every dollar of capital gains after that you tax at the capital gains rate right now which is half that of income – under the Democrats, it will be the same as income.
“It’s only going to really affect them if a) the house increases in value and b) everything over whatever the exemption is, what is going to be the rate going to be.”
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