Since it is possible that additional estate tax “relief” may be possible this year, and unlikely that we’ll see total “repeal”, PATG has drafted “Rate Reduction legislation” and are working with champions in the House and the Senate to get it introduced. You can see the talking points below.
It makes sense to have the same rate of tax, whether you sell your business or you die; but of course as long as there is an estate tax there will be a step up in basis at any rate. If you would like a copy of the actual legislation, please let me know.
The Estate Tax: Why Rate Reduction
There are three basic, fundamental principles of American life itself that are still at odds with the US tax code:
First, death should not be a taxable event.
Second, death should not result in the highest tax rates of the entire US tax code.
And third, no one should be subjected to double and even triple taxation at the time of death.
The 2017 tax reform legislation addressed these principles and took a step in the right direction. But while raising the lifetime exemption of the estate tax helps families, and the employees of their businesses, it does NOT help ALL families. It only helps those who are under the lifetime exemption threshold.
To be specific, the 2017 tax legislation does help the large majority of those families who file an estate tax return, but it does not help 66% of the families who actually have to pay the tax. Even with the increased exemption, it still means those who are above it must either liquidate their assets, terminate their employees or sell their business to pay the tax. None of these options are economically desirable or without consequences to the families or the businesses they own.
Moreover, at a current rate of 40%, higher than any other tax within the current US tax code – and administered after the owner has already paid income taxes, capital gains taxes, taxes on interest and other taxes – the effective estate tax rate on that income is well over 50%.
The solution?
If you believe America must retain the estate tax, then simplify the tax code by tying the estate tax rate to capital gains … so whether you sell your business or die, you pay the same rate of tax. The impact to the family (and the business) is exactly the same, so the tax consequence should be exactly the same.