This week, President Obama released his budget proposal for Fiscal Year 2016, outlining his spending and tax agenda for the coming year. As with previous proposed budgets, the outline relies heavily on more than $1.5 trillion in new taxes, mostly on high income and high net worth Americans to fund deficit reduction, new and expanded tax cuts for low- and middle-income families and new spending on infrastructure, education and research programs.
Among the many new taxes proposed in the tax section of the budget proposal known as the “Greenbook”, the President calls for over $400 billion in higher death taxes through nine new policy changes. All except the new “double death tax” the President proposed in his recent State of the Union address were included last year in the FY 2015 Greenbook. For an in-depth analysis of that proposal, please click here.
One very notable omission is the fact that the budget, for the third year in a row, does not call for eliminating valuation discounts. This omission leads many to suspect the Internal Revenue Service (IRS) intends to eliminate or curtail this legitimate planning method through regulation.
Below is a list of the provisions from the budget impacting estate and generation-skipping transfer taxes (GST). Below each provision is the resulting new revenue or “score” from the current budget versus the FY 2015 proposal. More detail on each of these proposals may be found in pages 193-206 of the FY 2016 Greenbook linked above. The “double death tax” provision is on page 156. All values are over ten years.
- Reform the taxation of capital income, including increase of capital gains and qualifying dividend rate to 28 percent and gifts and transfers at death as a sale of property
- FY 2015: Not in budget
- FY 2016: $207.9 billion
- Increase the rate to 45% (+5%) and decrease the exemption to $3.5 million for estates and GST (-$1.84 million) and $1 million for gifts (-$4.34 million)
- FY 2015: $118.5 billion
- FY 2016: $189.3 billion
- Require Consistency in Value for Transfer and Income Tax Purposes
- FY 2015: $2.5 billion
- FY 2016: $3.2 billion
- Require a 10-Year Minimum Term for Grantor Retained Annuity Trusts (GRATs)
- FY 2015: $5.7 billion
- FY 2016: $18.4 billion
- Limit Duration of Generation-Skipping Transfer (GST) Tax Exemption to 90 Years
- FY 2015: Negligible
- FY 2016: Negligible
- Extend the Lien on Estate Tax Deferrals where Estate Consists Largely of Interest in Closely Held Business
- FY 2015: $213 million
- FY 2016: $248 million
- Modify Generation-Skipping Transfer (GST) Tax Treatment of Health and Education Exclusion Trusts (HEETs)
- FY 2015: -$218 million
- FY 2016: -$231 million
- FY 2015: $2.9 billion
- FY 2016: $3.4 billion
- Alter Gift Tax Exclusion for Annual Gifts
- Expand applicability of definition of executor
- FY 2015: Negligible
- FY 2016: Negligible
Additionally, the budget calls for the implementation of the “Buffett Rule”, referring to it as a “Fair Share Tax.” This new tax on upper-income earners would raise $35.2 billion. While these proposals have little to no chance of enactment through the legislative process, it is significant in that it reflects the Administration’s policy priorities for the remainder of the President’s second term and indicates that while recent estate tax relief is protected by current law there remains significant interest in revisiting the issue.