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Pat Soldano welcomed Supporters and Members to the call, which focused on the tax proposals included in the Biden Administration’s American Jobs Plan and American Families Plan, with a particular focus on the proposal to eliminate step-up in basis.
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Frank Luntz (FILuntz, Inc) began by providing political context for the current Congress, emphasizing that with Democrats in control of the White House and both Chambers of Congress, there is a real possibility that the proposed tax changes – which would have an outsized negative impact on Supporters /Members– could be enacted. He also advised Supporters/Members to engage productively with the Administration and their Members of Congress and to avoid personal attacks on policymakers.
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Next, Brandon Román (Squire Patton Boggs) introduced Patrick O’Connor (Legislative Assistant to Rep. Henry Cuellar (D-TX)), who discussed his boss’ support for the forthcoming estate tax rate reduction bill. According to Patrick, Congressman Cuellar wants to repeal the estate tax and sees reducing the rate as a helpful step in that direction, providing much-needed relief to family-owned businesses. He also highlighted that 13 Democrats recently sent a letter seeking relief for farmers from the recently proposed tax changes, and suggested that these Members would be good targets to support the rate reduction bill. In terms of next steps, Rep. Cuellar and Rep. Jodey Arrington (R-TX), along with Senator Tom Cotton (R-AR), plan to introduce the rate reduction bill next week. PATG will then begin working to build out support for the legislation, beginning with Democrats and then focusing on Republicans.
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Russ Sullivan (Brownstein, Hyatt, Farber, Schreck) then provided an overview of the tax proposals included in the Biden Administration’s American Jobs Plan and American Families Plan. Those proposals include:
American Jobs Plan:
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- Increase the corporate tax rate to 28 percent.
- Increase to 21 percent the tax on Global Intangible Low Tax Income (GILTI), which will be calculated on a country-by-country basis and no longer exempt a 10 percent return on tangible investment abroad.
- Impose a 15 percent minimum tax on corporate book income for firms with more than $100 million in revenue.
- Repeal the Foreign-Derived Intangible Income (FDII) deduction.
- Provide a tax credit for certain domestic business activity and disallow deductions in certain instances when jobs are offshored.
- Eliminate tax incentives for the fossil fuel industry.
- End the practice of “stepping up” the basis for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions).
- Increase the capital gains tax rate to 39.6 percent on households making over $1 million.
- Increase the top marginal tax rate to 39.6 percent for taxpayers earning more than $400,000.
- Permanently eliminate the ability to tax carried interest income as ordinary income instead of capital gains.
- Limit like-kind exchanges (LKEs), primarily used by real estate investors to defer capital gains taxes when they swap properties, by capping the benefit at $500,000.
- Extend the Child Tax Credit increases in the American Rescue Plan through 2025 and make the Child Tax Credit (CTC) permanently fully refundable.
- Make Permanent the Expanded Child and Dependent Care Tax Credit (CDCTC).
- Make Permanent the Expanded Earned Income Tax Credit (EITC) for childless workers.
- Extend expanded Affordable Care Act premiums tax credits in the American Rescue Plan.
Next, Brandon provided additional detail about the Biden Administration’s proposal to eliminate step-up in basis. Specifically, the American Families Plan calls for taxing gains at death, though it allows a $1 million per person exemption. Additionally, the proposal would maintain the current exemption for gains on a principal residence (up to $500,000 if filing jointly) and provide relief (the specifics of which have yet to be determined) for family-owned businesses and farms. Notably, the gains would not be taxed if the property is donated to charity. He also discussed the STEP Act, which was introduced by Senator Chris Van Hollen (D-MD), pursuant to which:
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- Property would be treated as sold for its fair market value when transferred by gift, bequest, or to a non-grantor trust.
- Individuals would be provided with a $1 million exemption, which would be indexed for inflation.
- Up to $500,000 in gain from the sale of a principal residence would be excluded.
- Taxpayers would be permitted to pay the tax over 15 years if the gains are from assets that are not actively traded.
- Transfers to spouses and certain trusts would be exempt.
- Gifts and bequests to charities would also be exempt.
Brandon then discussed the work of the Family Business Estate Tax Coalition (FBETC) – for which PATG sits on the steering committee – surrounding these step-up in basis proposals. First, FBETC recently engaged EY to commission a macroeconomic impact of eliminating step-up in basis. Among other things, EY found that eliminating step-up in basis would result in: (1) 80,000 jobs lost each year for 10 years and then 100,000 jobs lost each year thereafter; (2) $100 billion decrease in gross domestic product over a 10-year period; and (3) $34 in lost worker wages for every $100 in revenue raised. FBETC is in the process of meeting with House Ways and Means, Senate Finance, and Joint Tax Committee staff to discuss the study and advocate against the proposals. Additionally, note that Rep. Jason Smith (R-MO) and Rep. Michelle Fishbach (R-MN) organized a Dear Colleague opposing elimination of step-up, which was sent to House leaderships with more than 150 signatures.
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To conclude, Pat again thanked supporters and reminded them that now, more than ever, is the time to engage with their policymakers and defend against Democrats’ proposed tax policy proposals.
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About Policy and Taxation Group
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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