Republicans have a chance in tax reform to do something that they’ve dreamed of for decades: repeal the estate tax.
But they face some headwinds.
Repealing the estate tax is estimated to cost $279 billion over a decade, contributing to the cost of a GOP plan that could add $1.5 trillion to the federal debt. The benefits from ending the tax would also largely flow to the United States’ wealthiest families and businesses, while President Trump is framing tax reform as a “middle-class miracle.”
A CBS News poll out on Sunday found a majority of voters see the GOP tax plan as tilting toward the rich. And Trump’s Treasury secretary, Steven MnuchinSteven MnuchinMajor Russian hacking group linked to ransomware attack on Sinclair: report The Hill's Morning Report - Presented by Alibaba - Biden jumps into frenzied Dem spending talks Former Treasury secretaries tried to resolve debt limit impasse in talks with McConnell, Yellen: report MORE, acknowledged on Friday that repealing the estate tax would be a boon primarily for the affluent.
“Obviously, the estate tax, I will concede, disproportionately helps rich people,” Mnuchin said, according to The New York Times.
That’s led a handful of Republicans to publicly question the wisdom of fully repealing the tax, which has existed in some form for more than a century.
Sen. Susan CollinsSusan Margaret CollinsThe Hill's Morning Report - Presented by Uber - Biden makes his pitch as tax questions mount Emanuel defends handling of Chicago police shooting amid opposition to nomination Emanuel to take hot seat in Senate confirmation hearing MORE (R-Maine), a key moderate whose vote was crucial in killing ObamaCare repeal, has voted against repealing the estate tax in the past. Last week, she said getting rid of the tax shouldn’t be a priority in reform.
Collins noted that the threshold for when the 40 percent tax kicks in was raised in recent years from $3.5 million to $5.5 million per individual, ensuring that fewer people pay it.
“I believe that we have taken care of the problem with the vast majority of family-owned business or ranchers in this country,” she told reporters. “So that is not a priority for me as we seek to craft this tax bill.”
Sens. Mike RoundsMike RoundsSenate GOP signals they'll help bail out Biden's Fed chair The Hill's Morning Report - Presented by Facebook - After high drama, Senate lifts debt limit Schumer frustrates GOP, Manchin with fiery debt ceiling speech MORE (R-S.D.) and Tim ScottTimothy (Tim) Eugene ScottTim Scott takes in .3 million in third quarter Nikki Haley gets lifetime post on Clemson Board of Trustees First senator formally endorses Bass in LA mayoral bid MORE (R-S.C.) are also on the record as questioning the need to abolish the estate tax in the tax rewrite. A spokeswoman for Scott confirmed that sentiment to The Hill.
Republican lawmakers in the House have not gone as far, though they acknowledge the rumblings of discontent.
“We’re still listening to members,” said Rep. Pat Tiberi (R-Ohio), a subcommittee chairman on the House Ways and Means Committee, told The Hill. “I would say overwhelmingly members are OK with repealing it. … Are there a few here and there [making suggestions otherwise], yeah.”
The Republican tax framework calls for complete repeal of the tax. And Trump railed against the tax as recently as Wednesday.
“We are going to protect thousands of family businesses by ending the crushing, horrible and unfair estate tax, sometimes known as the death tax,” Trump said a rally to promote his plan in Pennsylvania.
But now that Republicans have to fill in the fine print of their nine-page tax framework, they’ll need to make hard decisions about which tax breaks to keep and which to scrap.
“It’s an important part of the framework, but I think as we continue to look at all things, we’ll have to make some decisions,” Rep. Jim Renacci, an Ohio Republican who sits on Ways and Means, told The Hill.
But he added: “I’m just as concerned about small business and farms.”
Longtime tax crusader Grover Norquist, president of Americans for Tax Reform, noted that Republicans have gone on the record voting for estate tax repeal; ending the tax is also part of the party’s platform, and they can’t turn back now.
“I don’t see it happening. It’s been in the Republican platform for years,” he said.
Norquist said there is no point responding to Democratic critics of repealing the estate tax, who are not going to vote for the GOP plan in any event.
Democrats on the Senate Finance Committee issued a report Thursday arguing the ultra-wealthy are skirting the tax, which they say is necessary to tame income inequality.
“Fancy lawyers and crafty accountants have hung their careers on gutting the estate tax by engineering billion-dollar tax shelters for the 1 percent,” Sen. Ron WydenRonald (Ron) Lee WydenClimate advocates turn sights on Wall Street Democrats scramble to reach deal on taxes Pelosi open to scrapping key components in spending package MORE (Ore.), the top Democrat on the Finance Committee, said Thursday when releasing a report on evasion of the tax. He blasted Trump’s tax plan as a giveaway to the wealthy.
“It’s evidence that repealing the estate tax altogether would abandon progressivity and add to the continued erosion of America’s tax base,” Wyden said.
Republicans have campaigned against the tax for years, labeling it a “death tax” that is unfair to families.
The tax now applies only on assets, mostly real estate and stocks, passed on after death following a $5.5 million exemption per individual. That means the first $5.5 million of assets passed on are not subject to the tax.
Critics of repeal, including most Democrats, say the threshold excludes most of the small businesses and family farms that Republicans say are hurt most by the tax.
Just under 12,000 individuals paid the estate tax in 2015, according to the IRS.
An official with the American Farm Bureau acknowledged that a tiny fraction of the group’s members pay the tax.
“To say only a small percentage of farms pay it each year might be a true fact, but it doesn’t tell the story of the impact,” said Pat Wolff, the group’s congressional adviser.
Wolff said the cost of preparing for the tax is a drag on the farm economy. And then there is the principle of the matter.
“The reason our members continue to support [repeal] is that philosophically we don’t believe you should have to pay a tax because you die,” Wolff said.
Republicans hope to pass a tax rewrite this year, and Speaker Paul RyanPaul Davis RyanJuan Williams: Pelosi shows her power Cheney takes shot at Trump: 'I like Republican presidents who win re-election' Cheney allies flock to her defense against Trump challenge MORE (R-Wis.) said Thursday he is willing to keep lawmakers in over Christmas to do so.
The goals in the plan are ambitious: It calls for cutting the corporate tax from 35 percent to 20 percent, boosting the child tax credit, a key provision pushed by Ivanka Trump, and cutting individual rates across the board.
Tax writers need to find revenue to fund those cuts to avoid adding trillions to the debt.
Supporters of estate tax repeal say they will go into full attack mode if Republicans waver.
“There is always an appetite for more revenue … especially when there is tax reform,” said Palmer Schoening of the Family Business Coalition, calling the chatter “loose talk.”
And they have allies in key leadership positions.
In the House, Ways and Means Chairman Kevin BradyKevin Patrick BradyDemocratic retirements could make a tough midterm year even worse Yellen confident of minimum global corporate tax passage in Congress 136 countries agree to deal on global minimum tax MORE (R-Texas) sponsored the last effort the House took to repeal the tax.
Sen. John ThuneJohn Randolph ThuneDemocratic frustration with Sinema rises Senate Republicans raise concerns about TSA cyber directives for rail, aviation Democrats narrow scope of IRS proposal amid GOP attacks MORE, the senior senator from South Dakota and a member of GOP leadership, sponsored a version in the Senate.
Schoening said he doesn’t see leadership “getting squishy” on full repeal.
“But if that does happen, you’ll see major pushback.”