We should no longer expect a repeal of the estate tax in the foreseeable future. The estate tax affects only multi-millionaires and, in short, there is no political will to change this part of tax law to appease that small group of privileged Americans.
Estate tax repeal was brought up in the news yesterday as a possible Trump “wish list” item in advance of last night’s rally in Arizona but then wasn’t brought up by the president in his speech. It seems like a politically dead issue for Republicans now. The best analysis of tax reform I’ve read recently didn’t even mention estate tax.
My personal position has always been that the multi-generational passage of extraordinary amounts of wealth serves no useful function in society so a tax that attacks that type of wealth transfer is benign. It’s not that I like taxes but rather that this one doesn’t hurt the overwhelmingly large majority of us. Besides, there are already plenty of excellent tools and strategies for rich folks who wish to avoid paying estate tax. There is no reason to change the law that would undermine these deliberate and well considered alternate strategies.
The more important issue is that current estate tax law benefits a large portion of middle-class Americans through a provision known as “stepped up basis”. This means that the beneficiary of an estate is not taxed on the gain received. For example, assume your parent bought a house for $100,000. When they died, you received the house now worth $500,000. Estate tax law allows the estate to recognize the $500,000 value of the house but you do not pay any tax. The estate isn’t taxed either, assuming the total assets are under $6 million. Without the estate tax law, all of the inheritance would be taxable.
So it’s great news for most of us that the estate tax will remain in place.