Drive to Kill Estate Tax Isn’t Dead, Despite Doubled Exemption

For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...

By Allyson Versprille and Jorge Uquillas

Estate tax repeal efforts aren’t dead, but tax law changes will make it harder for proponents to make headway anytime soon.

“Getting enough Democrats to vote for repeal in the near term I think is going to be a pretty heavy lift,” Sen. John Thune (R-S.D.), a member of the Senate Finance Committee, told Bloomberg Tax.

The 2017 tax overhaul doubled the estate tax exemption to about $11 million for individuals and $22 million for couples. In 2026, those amounts revert to previous levels.

Republicans enacted the changes using the fast-track budget reconciliation process, which allowed them to advance the legislation with a simple majority. Full repeal couldn’t garner the 51 votes needed then, so it would be difficult to get the 60 Senate votes that would be required now, Thune said.

There were several factors, including the cost of a full repeal, that were considered in the debate on the underlying bill, he said. The Joint Committee on Taxation estimated that doubling the estate tax exemption would cost $83 billion over 10 years, while a full repeal would have cost about $270 billion. “I think a lot of us would like to see the death tax repealed entirely, and we’ll keep working toward that end, but I think at the moment doubling the exclusion was, under the circumstances, the best we could do,” Thune said.

Finance Committee member Tim Scott (R-S.C.) said a complicating factor for full repeal in the near future is the fact that significantly fewer people are now affected by the estate tax. “It’s good that we doubled” the exemption, he said. But “you’re probably losing a part of the audience for estate tax repeal.”

The JCT estimated that doubling the exclusion would reduce the number of estates paying the tax in 2018 to about 1,800 from 5,000 under previous law.

House Ways and Means Committee member Kristi Noem (R-S.D.), who has been a strong advocate for repeal, told Bloomberg Tax she has a strategy in mind for getting rid of the estate tax. “I’m leaving,” Noem said, referring to her decision to run for governor of South Dakota, “so I want to do it this year.”

Thune said he would support repeal legislation. “If there’s a vehicle that comes along prior” to the 2026 expiration of the higher exemption “where we could hitch a ride and try to repeal it completely, I’m certainly open to that,” he said. “I’ll be looking for those opportunities, but I’m not sure in the near term where that is.”

‘Pedal to the Floor’

The Family Business Coalition will continue to push for estate tax repeal in 2018, despite the relief provided in the GOP tax legislation, Palmer Schoening, chairman of the pro-repeal group, told Bloomberg Tax.

“FBC will be keeping the pedal to the floor for full repeal and fighting against attempts to roll back relief,” Schoening said in an email. “In many ways there is now more at stake,” he said.

It’s possible that the estate tax could increase in coming years, given the temporary nature of the individual provisions in the recent tax overhaul ( Pub. L. No. 115-97) and the unpredictability of the upcoming midterm elections, Schoening said.

Sen. Bernie Sanders (I-Vt.) has expressed a desire to raise the estate tax rate to 65 percent, while cutting the exemption, “which would be an absolute legacy killer for multigenerational family businesses and farms,” Schoening said. “Anyone who thinks this as a settled issue because Congress passed a temporary tax relief bill has their head in the sand,” he said.

Patricia Wolff, senior director of congressional relations at the American Farm Bureau Federation, said AFBF still supports repeal of the estate tax but that tax issues in general have fallen off the group’s priority list—they have been replaced by the 2018 farm bill and immigration issues.

“Our push will be to make the new higher exemption levels permanent,” Wolff said in an email. The AFBF will support the FBC’s full repeal efforts but doesn’t plan to take a lead role, she said.

In 2017, the AFBF spent $4.05 million to lobby on estate tax repeal and other issues, according to federal lobbying data analyzed by Bloomberg Government.

Kevin Kuhlman, director of government relations at the National Federation of Independent Business, said estate tax repeal remains a top priority for NFIB. “It will be especially important as the doubling of the exemption threshold returns to 2017 levels (indexed) in 2026,” he said in an email.

NFIB spent $3.30 million from Jan. 1 through Sept. 30 lobbying on several issues, including estate tax repeal, according to the Bloomberg Government analysis. The group’s fourth-quarter lobbying disclosure listed the Republican tax legislation—H.R. 1—but didn’t explicitly mention the estate tax.

The U.S. Chamber of Commerce was another notable supporter of eliminating the estate tax, spending $58.78 million in 2017 on that and other issues, the analysis showed.

Messaging Wars

For groups that want the estate tax to be strengthened, the most important action in 2018 will be to ensure that Republicans don’t take control of the narrative about the new tax law—especially as the November mid-term elections draw closer.

“My goal is for the American public to simply be aware of what has just happened,” said Eric Schoenberg of the pro-estate tax group Patriotic Millionaires. “This is an enormous tax cut for rich people.”

The Koch network—a conservative political network led by billionaires Charles and David Koch—announced at a summit near Palm Springs, Calif., that it plans to invest as much as $20 million in 2018 to sell to voters on the Republican tax cuts. At the summit, Senate Majority Whip John Cornyn (R-Texas) agreed that conservative lawmakers need to better advertise the benefits of the tax overhaul.

Republicans are in “full-tilt boogie,” trying to frame the new tax law in a positive light, Frank Clemente, executive director of Americans for Tax Fairness, a left-leaning advocacy group, told Bloomberg Tax. “They’re going to try to polish it up as a jewel,” he said. “But I think it’s going to remain seriously blemished” and will hurt those who voted for it in the upcoming elections, Clemente said.

A Monmouth University poll showed some public warming to the tax cuts. The poll, conducted by phone Jan. 28 to Jan. 30, found that support for the new tax law is split—with 44 percent of the 806 adults surveyed approving and 44 percent disapproving. This is a significant shift from a mid-December poll by Monmouth that found 26 percent approved of the tax legislation and 47 percent disapproved.

A Pew Research Center survey conducted Jan. 10 to Jan. 15 generated less positive results, finding that 37 percent of 1,503 people surveyed approved of the law and 46 percent disapproved. Seventeen percent didn’t offer an opinion.

Schoenberg said it’s unlikely any of the recent tax changes will be reversed, including those relating to the estate tax, until the composition of Congress changes.

With assistance from Kaustuv Basu (Bloomberg Tax) and John McCormick (Bloomberg).

To contact the reporters on this story: Allyson Versprille in Washington at aversprille@bloombergtax.com (Bloomberg Tax); Jorge Uquillas in Washington at juquillas@bloomberg.net (Bloomberg Government)

To contact the editor responsible for this story: Meg Shreve at mshreve@bloombergtax.com (Bloomberg Tax)

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Daily Tax Report®