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A House Republican plans to reintroduce legislation that would allow taxpayers to make annual payments in lieu of owing the estate tax at death if estate tax repeal isn’t achieved through tax reform.
The American Solution for Simplifying the Estate Tax (ASSET) Act, which Rep. Andy Harris (R-Md.) has proposed in previous Congresses, would enable taxpayers to pay a percentage of their modified adjusted gross income annually for a certain number of years to avoid estate taxes at death. The Maryland lawmaker said the tax certainty the bill creates would make it easier for family business owners to transfer their operations to subsequent generations.
Michael J. Graetz, a tax law professor at Columbia Law School, said he expects estate tax repeal to be incorporated into tax reform legislation, because Republicans have been pushing the change for years—but that there’s always a risk that reform will fail.
If enough Republicans are concerned that tax reform “be revenue-neutral, then they have to find significant revenue increases to offset the Trump proposals for tax cuts. And as we’ve seen with the border adjustability tax, any time you’re raising a lot of money from particular industries you create a lot of opposition, and that opposition always has a potential to stop legislation,” said Graetz, a former Treasury Department official.
“We’re always waiting for tax reform and hoping that we can repeal the estate tax entirely, but in the absence of repealing it we need a method that people can have so that they don’t spend exorbitant amounts of money trying to avoid the estate tax,” Harris told Bloomberg BNA.
Harris, a member of the Appropriations Committee and the Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies, said he is waiting to see how tax reform progresses through the spring, but could reintroduce the legislation as early as this summer if estate tax repeal looks improbable.
Trump advocated for estate tax repeal on the campaign trail, and it is included in his tax plan unveiled April 26. It is also part of the House GOP’s tax reform blueprint. Harris said that House Ways and Means Committee Chairman Kevin Brady (R-Texas) has expressed interest in the ASSET Act idea but that his priority is estate tax repeal.
An April 27 statement from Brady’s office said the chairman appreciated Harris’s “leadership on reducing the harmful impacts of the death tax” and that Brady is “committed to totally repealing this unfair tax.”
Harris introduced versions of the ASSET Act in 2014 and 2015. In the 2015 iteration (H.R. 3508), taxpayers could elect to make annual payments of 1 percent of their modified adjusted gross income for a minimum seven-year period in lieu of existing estate and generation-skipping transfer taxes.
The Joint Committee on Taxation found that the 2015 bill would cost the government money, so the new legislation will include tweaks to make it revenue-neutral, Harris said.
The lawmaker said he is considering increasing either the annual payment amount or the seven-year payment window. Making the legislation revenue-neutral will make it more attractive to potential co-sponsors, Harris said.
The ASSET Act has failed to garner much attention or support in the past, though the 2015 version was sponsored by a Republican, Rep. Alex X. Mooney (W.Va.), and a Democrat, Rep. Don Beyer (Va.).
Advocates and opponents of estate tax repeal have mixed views on past versions of the ASSET Act and Harris’s plans to reintroduce the legislation.
“The Family Business Coalition’s immediate priority is to pass full repeal of the estate tax through comprehensive tax reform,” said Palmer Schoening, chairman of the FBC. “Right now, FBC is solely focused on making sure full death tax repeal remains an important pillar of House, Senate and White House tax reform plans,” he told Bloomberg BNA in an April 26 email.
Absent repeal, the general idea behind the ASSET Act would be a “huge improvement” to the current law for family businesses, Schoening said. “If the legislation can attract Democrats while scoring as revenue neutral or as a net tax cut, it could help the plan’s prospects as an alternative.”
The American Farm Bureau Federation hasn’t taken a position on the ASSET Act, but the group supports full repeal of the estate tax. “Until repeal is accomplished, Farm Bureau supports increasing the exemption and indexing it for inflation,” said Pat Wolff, senior director of congressional relations. The 2015 ASSET Act didn’t include a provision to increase the exemption amount.
The group also supports retention of the income tax benefit known as “basis step-up” in all scenarios, Wolff said. The basis step-up allows a person who holds onto his or her assets until death to get a step-up in the basis of those assets to fair market value. This reduces the amount of capital gains tax that heirs must pay on the inherited property if it is sold. The 2015 ASSET Act would have allowed a step-up in basis for estate property of a taxpayer, but only for those who elect treatment under the simplified tax regime.
Eric Schoenberg of Patriotic Millionaires, a pro-estate tax group, said he is skeptical of the ASSET Act idea, though he said he doesn’t speak for his group as a whole.
“At first glance, any tax which allows taxpayers to (selectively!) pay a percentage of AGI rather than of wealth is going to enable a great deal of game playing and evasion,” Schoenberg said in an April 25 email to Bloomberg BNA.
“And more fundamentally, I do not believe that the problem it purports to solve—financial distress arising from a need to pay estate taxes—is much of a problem; while this has been a talking point among Republicans for years, I’ve never actually seen them present any evidence that it is true,” he said.
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