Death Tax Progress

Posted on January, 30 2017, 15:14

The tax writers in the House Ways and Means Committee and in the Senate Finance Committee are working with the new Trump Administration to develop a tax plan to submit to Congress, and they are under an indeterminate deadline:  "soon."  They are working on strategy as well as substance.  In other words, should there be one major tax bill this year or one quickly and another later in the year?  Which provisions of the new President's proposals will get support from the Hill?  Which will be fought most by the Democrats?  Which might garner some Democratic support?  Which proposals will generate support or opposition to various voter groups, lobbying organizations and think tanks?  And, most importantly, what is the right thing to do?
Recently I had a constructive conversation with a highly knowledgeable advisor to the White House.   The options being discussed are logically sensitive to all of the variables mentioned  above.  They illuminate the battle we face to achieve repeal of the Death Tax.  There is much work to do to address some of the proposals and to reinforce our allies in Congress -- and our allies on the Trump team.
I discuss below some of the major Death Tax options being discussed at this time, in addition to the provisions of the Thune/Noem bills to repeal which were introduced last week.   I would be greatly appreciative of any input you might want to give us.
One option being discussed is to simply reduce the Death Tax to 20%.  This option certainly flies in the face of candidate Trump’s widely announced plans to repeal the Death Tax!  The press would have a field day.  If this became the new plan we would continue to fight as would our allies in Congress and in the coalition of organizations supporting repeal. 
Another proposal would repeal the Death Tax but replace the step-up-in-basis with a system which would require the payment at death of capital gains taxes on the change of value of the assets in the deceased's estate.  In other words, with Carry-over in Basis, the heirs of the estate would have to cash out the Capital Gains taxes at death.  
This alternative would replace the old Death Tax with a new tax due at death.  It would continue the unfairness, the valuation controversies, the extra costs and the disincentives to work and success. 
On a static basis, this alternative would seem to reduce the loss of revenue to the Treasury, but it would influence work and investment decisions that would inevitably reduce the size of the GDP -- reducing long term tax revenues.   
To me  this alternative feels like “bait and switch."   If loyal supporters feel this way, one could imagine what the press would do to this approach.  I have been getting concerned calls & emails from many of my board members and supporters about the press articles speculating about this possibility.   They emphasize to me that this option would hurt family businesses, ranches and farms in the same way the current Death Tax does.  If this took place we would continue to fight. 
Another alternative would be to repeal the Death Tax and replace the Step-up in Basis with Carry-over in Basis and institute an $11 million exemption.  Heirs would pay the Capital Gains when they sell the inherited assets.  In this scenario the heirs would pay the taxes when they have the cash from the sale, as opposed to payment at death.  An interesting and potentially constructive side-effect is this tax policy would encourage the family’s continued ownership of family businesses, ranches and farms.  If Step-up in Basis must be sacrificed, many could support this approach.
It is important to note that the American Farm Bureau Federation has made it very clear that they would specifically oppose getting rid of the Step-up in Basis and replacing it with Carry-over in Basis. To point out the obvious, there are many, many farms in Wisconsin, Iowa, Indiana, Pennsylvania, North Carolina and Florida -- states crucial to the Trump victory.  The farmers are a vital part of our Death Tax repeal movement, to state the obvious.
Supporters of the Death Tax will shout that repeal is a "giveaway to the rich" and our job is to show that those bearing the burden of this tax include millions of working men and women whose livelihoods are endangered by the Death tax.   President Trump will be criticized because of his personal wealth.   We must show the damage to the economy, the American worker and the fact that the burden of the Death Tax falls not on the billionaires, but on the entrepreneurs, farmers, and small businessmen... and all who work on their payrolls.