Estate tax repeal hasn’t been part of the conversation surrounding tax reform lately. I think it’s safe to assume that the average Republican hasn’t become more supportive of the tax as a concept, but events seem to be changing the calculus and, in this correspondent’s mind, signaling that estate tax repeal may be “off the table” in this go-around. In the past several weeks, we’ve seen Democrats win the debate over the repeal of the net investment income tax, which seems to be out of any further efforts at Obamacare repeal – a move that changes the baseline and makes deficit-neutral tax reform harder. Then Steve Bannon floated the idea of actually raising tax rates on the rich to 44.5%. Though Administration officials involved in talks about the contours of tax reform have disavowed such that idea, it’s a definite shift from “traditional Republican tax policy” concepts.
But now the dam may have broken. Kevin Brady, Chairman of the House Ways & Means Committee, didn’t mention estate tax repeal in a recent speech at the Reagan Ranch in California, choosing instead to emphasize similarities to the 1986 reform efforts (which did not include an estate tax repeal). And, as reported by my news colleague Colleen Murphy, Orrin Hatch, Chair of the Senate Finance Committee and pretty standard-issue conservative on taxes, has recently said that they will “come after” the rich. Specifically, Sen. Hatch said: “There’s no question they’re [the rich] not going to get anything, hardly anything, out of any tax reform that we do.” Certainly the “hardly anything” in there provides some wiggle room, but it doesn’t strike me as being enough to squeeze something like estate tax repeal through. Let’s face it, whatever your thoughts are on the policy and economics of the estate tax, it’s hard to claim that a repeal wouldn’t primarily benefit taxpayers with some significant wealth.
Is this the death knell for repeal? This writer thinks it is – so the estate planning bar can breathe a sigh of relief. Of course, there are reform ideas regarding the transfer tax system that may still be included in any overall package, but a straight up repeal of the estate tax seems to have faded as an option. This is especially likely if the Administration and Congressional leaders are serious about making this a bipartisan effort – it’s hard to see getting significant Democratic buy-in for a bill that includes a wholesale repeal of the estate tax when Hillary Clinton campaigned on expanding the tax and Senate Minority Leader Chuck Schumer has accused past repeal efforts of being giveaways to the “ultra-wealthy”.
So, what might still be on the table in this area? The GST tax, which now backstops an estate tax that hits fewer people and produces such a small portion of federal revenue, has become so complex that drastic changes to, or even repeal of, that tax could be an option. In addition, advocates for family farmers and family-owned small businesses remain strong (and there are a lot of Republicans representing farm states, particularly in the Senate), so we may see efforts to ease any impact the transfer tax regime has on taxpayers’ abilities to keep those types of entities in the family as they are passed to the next generation. And of course, there’s the possibility that the estate tax is replaced with an alternative form of death-triggered wealth tax. Then candidate Donald Trump suggested the “capital gains at death” idea – which while short on specifics would probably take the form of treating death as a recognition or mark-to-market event that gave rise to liability for capital gain taxes, perhaps subject to some form of exemption or deferral.
In short, there’s still a lot of possible action in the transfer tax space as reform talks move forward and legislative language begins to emerge on both sides of the Capitol. We may get some additional ideas on the range within which the major players are operating if the Administration follows through with plans to release next month, more details regarding the agreed principles for any tax reform legislation as a follow on to a July joint statement by Congressional leaders and Administration officials regarding the tax reform process. But Sen. Hatch’s comments, and those by Rep. Brady, seem to point towards a focus on issues surrounding individual and business tax rates and complexity and away from any significant action on transfer taxes. So, at least as far as this writer is concerned, we’re likely to see a lot more “status quo” than radical revision when it comes to the transfer tax regime.
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