Danger Lurks in Debt Reduction Battle


By Pat Soldano

In the debt ceiling struggle between the Republican-led House and the Biden Administration I never figured higher taxes as a likely result.

But beware, danger lurks.

In speaking with my good friend, and Capitol Hill expert, Russ Sullivan, a partner at the Washington DC law firm Brownstein, legislative tricks run amuck is now clearer to me.

Sure, most pundits say taxpayers can rest easy with Republicans in the majority. With conservatives at the House helm how can Washington possibly raise taxes on successful individuals and family businesses?

Russ provided me with a few good reasons to be worried, very worried.

The first is straightforward: Who needs the House? It seems The Department of Treasury can pull a rabbit out of its hat, if it likes, by simply writing new tax laws through revised regulations.

As Russ warns, a negotiated compromise on the debt ceiling deal might require a down-payment on deficit reduction.

This payment will come from, wait for it, successful individuals and family businesses.

Then there are issues like spending “offsets.” Let’s not forget IRS investigations into successful individuals, too, which likely will get intense press coverage.

No one knows where this will end up, but we do know the debt ceiling will be raised. It’s likely spending cuts will be part of some deal, and to insiders, Republicans have not ruled out revenue increases, too. Yes, that means higher taxes.

Budget neutral legislation is one area of agreement between the two parties. Democrats have passed two recent major bills, each fully offset. The infrastructure bill offset all new spending (above the baseline), and some of the offsets were tax increases. One bill included $460 billion in tax increases, and the overall bill reduced the deficit by $240 billion. Likewise, new House Republicans rules require legislation offsets.

What will happen in conferences with the Senate controlled by Democrats? This is where it gets murky, and dangerous.

As the Biden Administration looks for offsets, like some bureaucratic sleight of hand, it discovers more taxes on successful individuals and family businesses as one solution.

There are many tricks to be played here, including issues of student debt forgiveness, ESG disclosure, limits on valuation discounts, rewriting of investment definitions, and, well, a lot more up the sleeves of Treasury.

Recently, the Democrat-controlled Senate sent a letter to Treasury. The letter urged it to exercise its authority limiting abuse of trusts by the ultra-wealthy. It’s a clear warning.

The first demand is to revoke guidance on the transfer of assets between a grantor and a grantor trust as a non-taxable event. The second, revoke guidance holding that gift taxes do not apply to a grantor’s payment of income tax attributable to trust income. The third, reissue regulations to address abuse of valuation discounts. And lastly, require GRATs (Grantor Retained Annuity Trust) to have a minimum remainder value. It’s a bit like Three Card Monty. Where will the new tax pop-up? And unlike military generals, old tax proposals don’t die or fade away, they are just deferred or worse, expanded.

Talk of the old top capital gains rate of 39.6 percent is still alive and well, as are transfers of property by gift or on death considered realization events.

Then, there is the imposition of a 20 precent minimum tax on total income, including unrealized gains, for taxpayers with $100 million to report annually. There is much more too, like no step up in basis, changes to gift taxation, and, well, so many hidden tricks I can’t possibly list them all here.

The question is: what can we do to fight against these likely tax increases, all of which will hurt family businesses, our local communities, and the economy?

The answer is not sexy, but it works: raise awareness.

We must educate new committee chairs, party leaders, and new members of Congress and explain to them the serious impact these measures have. Next, we need to recruit and rally champions for family business through the new Congressional Family Business Caucus.

As the 2024 election cycle begins, we need to also identify senators and representatives who understand the stakes and are facing close races in 2024.

Lastly, we need to engage the Treasury Department so they will turn this upside-down world and make it right-side up.

We need to end this magic show by letting them know we are here, and we are rallying their constituents. We need to stop the adverse regulatory guidance against America’s largest private employer, America’s family business.
The tricks need to stop.

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The need for fact-based reporting of issues important to family offices and successful individuals and protecting a lifetime of savings has never been greater. Now more than ever, family offices and successful individuals are under fire. That’s why Policy and Taxation Group is passionately working to increase the awareness of issues important to family offices and successful individuals, while continuing to strengthen our presence on Capitol Hill.

Policy and Taxation Group is the Voice for Family Offices and Successful Individuals in Washington, DC focused exclusively on the critical tax and economic policies that impact them.

Since 1995, Policy and Taxation Group has been the leading advocacy group working to reduce and eliminate estate tax, gift tax, and generation skipping transfer tax while blocking increased income tax and capital gains taxes, the creation of a wealth tax, and other hostile tax policies that punish hardworking taxpayers and success.

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