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Financial Planning > Tax Planning

The politics of repealing the estate tax

By Tom Nawrocki

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In the middle of April, while Americans were still stinging from having filed their income taxes the previous day, the House of Representatives voted to repeal the estate tax, which they like to call the death tax. The legislation passed 239 to 179, with all but three Republicans voting in favor of it, and all but seven Democrats voting against it.

How much further can this legislation go? Should estate planners start telling their clients that maybe they don’t have to jump through so many hoops to protect their assets? After all, the Republicans control not just the House but the Senate as well. And last March, a majority of the senators, 54 of them, went on record as supporting the repeal of the estate tax, as part of a non-binding budget resolution. 

So will the repeal go tripping merrily through the Senate and become law? Not so fast. The Democrats seem intent on filibustering any repeal; and they need just 41 votes to stop its passage. Even if the majority of the Senate wants to pass repeal, it would take 60 votes to overcome the filibuster.

There are now 44 Democrats in the Senate, and the socialist Bernie Sanders of Vermont and independent Angus King of Maine also caucus with the Democrats. To defeat a filibuster would require the Republicans to flip six of these votes.

Is that a possibility? Senate minority leader Harry Reid has been a longtime supporter of the estate tax. In 2008, he opposed a measure to raise the exemption level from $1 million to $5 million.

Reid has announced he will retire and not run for re-election in 2016. That means he will probably carry a significant amount of goodwill as his senate career winds down. Just one Democratic senator, Joe Manchin of West Virginia, joined with the 53 Republicans who supported repeal in March.

Even if Senate Republicans managed to turn enough Democrats to overcome the filibuster, President Obama would almost certainly veto the repeal measure. Earlier this year, Obama proposed to expand the estate tax’s bite by eliminating the step-up in basis that allows people to pass appreciated assets on to their heirs without paying capital gains tax. There’s no way he is going to allow the estate tax to be eliminated on his watch.

Realistically, that means the Republicans must wait until after the 2016 elections to finish the job of repealing the estate tax. While most political pundits expect them to keep the House of Representatives, building a filibuster-proof majority in the Senate is a sterner challenge.

Of the 34 seats up for grabs in next year’s election, 24 belong to the Republicans and just 10 belong to the Democrats. To reach a 60-seat supermajority, the Republicans would have to keep all their seats and flip half the Dem seats, and hope that Joe Manchin stays on their side. That’s a tall order.

And, of course, the country would have to elect a Republican president in 2016. All the major Republican candidates who have declared a position on the estate tax have called for its repeal:

  • Former Florida governor Jeb Bush says he is concerned about the effect repeal would have on state tax coffers, but nevertheless says, “I support the eventual repeal of the estate tax.”

  • Florida senator Marco Rubio says, “Let’s eliminate double taxation by abolishing the taxes on capital gains, on dividends, on interest; and, while we’re at it, let’s eliminate the one on death too.” 

  • In 2010, Kentucky Senator Rand Paul supported eliminating “every form of unfair, double taxation in the United States, including the capital gains, dividend, estate, gift, and interest tax.”

  • Texas senator Ted Cruz supports eliminating not just the estate tax but the entire IRS as well.

These kinds of forceful bully-pulpit statements might be enough, under the right circumstances, to repeal the estate tax again come 2017, when a new president takes office. He would have to sway public opinion enough to peel off several Democratic senators to his side, as well. But realistically, there’s no chance of that happening before 2017, at the earliest.

 

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