Below is a summary of the relevant provisions in a proposal released Monday from Ways & Means; imposing tax increases for “high-income individuals.”

The proposal does include increases in the individual and capital gains tax rates; a “sur charge” for individuals earning more than $5 million in AGI; and changes to the rules related to grantor trusts, among other things; see below.

Good News: Elimination of step-up in basis was not included in this proposal; it appears that may be “off the table” that is what our intel in the Senate is telling us. They do not have the votes for it.

But this is what was included.

Accelerating expiration of TCJA estate and gift tax parameters. ($50b) The TCJA which doubled the estate and gift tax exemption to $11.7 per person and was to expire on December 31, 2025. The proposal moves the expiration date up to December 31, 2021 and reduces the exemption to $5 million per person!

Modifications to estate tax valuation rules ($20b) This provision changes the valuation rules to ignore discounts from partial ownership or lack of control of an asset in determining its value. This rule applies only to assets that are not used in a business. This provision is limited to passive assets, so these discounts are still permitted for family farms and businesses in the same way as current law.

Changes to the treatment of grantor trusts ($7b) This provision changes the estate and gift tax rules that apply to grantor trusts so that they are more like the income tax rules. In general, a grantor trust is a trust where the person putting assets into the trust controls it so closely that they’re treated as earning the income from the trust directly. This provision applies only to future trusts and future transfers. This provision also taxes a sale from a grantor trust to its owner the same way as a normal sale of assets.

Tax Increases for High-Income Individuals

Sec. 138201. Increase in Top Marginal Individual Income Tax Rate.
The provision increases the top marginal individual income tax rate in section 1(j)(2) to 39.6%.
This marginal rate applies to married individuals filing jointly with taxable income over $450,000, to heads of households with taxable income over $425,000, to unmarried individuals with taxable income over $400,000, to married individuals filing separate returns with taxable income over $225,000, and to estates and trusts with taxable income over $12,500. The amendments made by this section apply to taxable years beginning after December 31, 2021.

Sec. 138202. Increase in Capital Gains Rate for Certain High-Income Individuals
The provision increases the capital gains rate in section 1(h)(1)(D) to 25%. The amendments made by this section apply to taxable years ending after the date of introduction of this Act. A transition rule provides that the preexisting statutory rate of 20% continues to apply to gains and losses for the portion of the taxable year prior to the date of introduction. Gains recognized later in the same taxable year that arise from transactions entered into before the date of introduction pursuant to a written binding contract are treated as occurring prior to the date of introduction.

Sec. 138203. Application of Net Investment Income Tax to Trade or Business Income of Certain High Income Individuals
This provision amends section 1411 to expand the net investment income tax to cover net investment income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (single filer) or $500,000 (joint filer), as well as for trusts and estates. The provision clarifies that this tax is not assessed on wages on which FICA is already imposed. The amendments made by this section apply to taxable years beginning after December 31, 2021.

Sec. 138204. Limitation on Deduction of Qualified Business Income for Certain High Income Individuals
The provision amends section 199A by setting the maximum allowable deduction at $500,000 in the case of a joint return, $400,000 for an individual return, $250,000 for a married individual filing a separate return, and $10,000 for a trust or estate. The amendments made by this section apply to taxable years beginning after December 31, 2021.

Sec. 138205. Limitations on Excess Business Losses of Noncorporate Taxpayers
This provision amends section 461(l) to permanently disallow excess business losses (i.e., net business deductions in excess of business income) for non-corporate taxpayers. The provision allows taxpayers whose losses are disallowed to carry those losses forward to the next succeeding taxable year. The amendments made by this section apply to taxable years beginning after December 31, 2021.

Sec. 138206. Surcharge on High Income Individuals, Trusts, and Estates
This provision adds section 1A, which imposes a tax equal to 3% of a taxpayer’s modified adjusted gross income in excess of $5,000,000 (or in excess of $2,500,000 for a married individual filing separately). For this purpose, modified adjusted gross income means adjusted gross income reduced by any deduction allowed for investment interest (as defined in section 163(d)). The amendments made by this section apply to taxable years beginning after December 31, 2021.

Sec. 138207. Termination of Temporary Increase in Unified Credit
This provision terminates the temporary increase in the unified credit against estate and gift taxes, reverting the credit to its 2010 level of $5,000,000 per individual, indexed for inflation.

Sec. 138208. Increase in Limitation of Estate Tax Valuation Reduction for Certain Real

Property Used in Farming or Other Trades or Businesses

This provision amends section 2032A to increase the special valuation reduction available for qualified real property used in a family farm or family business. This reduction allows decedents who own real property used in a farm or business to value the property for estate tax purposes based on its actual use rather than fair market value. This provision increases the allowable reduction from $750,000 to $11,700,000.

Sec. 138209. Certain Tax Rules Applicable to Grantor Trusts
This provision adds section 2901, which pulls grantor trusts into a decedent’s taxable estate when the decedent is the deemed owner of the trusts. Prior to this provision, taxpayers were able to use grantor trusts to push assets out of their estate while controlling the trust closely. The provision also adds a new section 1062, which treats sales between grantor trusts and their deemed owner as equivalent to sales between the owner and a third party. The amendments made by this section apply only to future trusts and future transfers.

Sec. 138210. Valuation Rules for Certain Transfers of Non-Business Assets
This provision amends section 2031 by clarifying that when a taxpayer transfers nonbusiness assets, those assets should not be afforded a valuation discount for transfer tax purposes.

Nonbusiness assets are passive assets that are held for the production of income and not used in the active conduct of a trade or business. Exceptions are provided for assets used in hedging transactions or as working capital of a business. A look-through rule provides that when a passive asset consists of a 10-percent interest in some other entity, the rule is applied by treating the holder as holding its ratable share of the assets of that other entity directly. The amendments made by this section apply to transfers after the date of the enactment of this Act.

This is just the start of the process as ultimate proposals that are considered in the Senate and ultimately voted on, may or may not contain what is described above.


Policy and Taxation Group is your voice in Washington on economic freedom. We advocate for policies that allow American families to fully enjoy the economic liberties and benefits of a robust free market unique to our nation. For over 25 years, we have been the loudest voice in the nation’s capital on eliminating the death tax. This ill-conceived tax has a destructive impact on families, family businesses, job creation, and the national economy.

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