Washington, DC – During President Biden’s address to a joint session of Congress last night, he proposed that Congress take up the administration’s recently proposed American Families Plan, which includes the creation of a new higher capital gains rate (over 40%) and a new capital gains tax due at death. This second death tax comes in addition to the current federal estate tax, which could make total liabilities for top taxpayers hoping to pass on a family farm or business well over 60%.
AMAC Action and other small business associations are urging Congress not to take up this part of what has been called the American Family Plan, which President Biden will introduce tonight during his address.
AMAC Action President Bob Carlstrom said: “The creation of a new capital gains tax due at death could hit multigenerational family business owners at the worst possible time. It turns out that many of the taxes focused on the so-called wealthy proposed by Congressional Democrats will actually end up affecting the middle class and small family businesses. AMAC Action, together with other small business and advocacy organizations, is urging lawmakers to oppose the new capital gains tax due at death. Congress should be focused on ways to help small businesses keep their workers employed as the country works through this pandemic, rather than on coming up with new ways to tax them upon the death of a business owner.”
Americans for Tax Reform recalled a New York Times post on a previous attempt by Congress to change what is called “step up in basis” laws. From their blog on the subject available here:
As noted in a July 3, 1979, New York Times article, it was “impossibly unworkable”:
However, almost immediately, the new law touched off a flood of complaints as unfair and impossibly unworkable. So many, in fact, that last year Congress retroactively delayed the law’s effective date until 1980 while it struggled again with the issue.
As noted by the NYT, intense voter blowback ensued:
Not only were there protests from people who expected the tax to fall on them — family businesses and farms, in particular — bankers and estate lawyers also complained that the rule was a nightmare of paperwork.
The Biden administration has indicated that they may not seek changes to the current estate tax but are considering higher capital gains taxes, including those due at death. So while they may not propose hiking the death tax in the traditional sense, a second death tax in the form of capital gains at death will be proposed, and the issue of “step up in basis” is on the table as well.
AMAC Action will continue to monitor any efforts to roll back the 2017 Tax Cuts, and Jobs Act changes. As of now, no meaningful changes to the death tax have become law. President Trump’s signature tax bill, “The Tax Cuts and Jobs Act,” still remains the law of the land. Still, Congress is gearing up to consider a number of tax changes this summer to fund infrastructure and the priorities that President Biden will lay out tonight, including, as is being reported: a universal preschool program and two years of tuition-free community college. Please stay tuned for more updates as Congress debates which legislative proposals to move forward with this year.