It appears that, in 2024, tax bills will be all the rage. Following relatively little activity in Congress focused on the tax code, there are currently two tax proposals for consideration.
Tax Relief for American Families and Workers Act of 2024
Last week, Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.) announced a bipartisan tax proposal that would restore bonus depreciation, put an early end to the Employee Retention Credit (ERC), and expand the Child Tax Credit (CTC). (You can read the details here.)
Days later, the House Ways and Means Committee voted to advance the deal. Three Democrats voted against the measure—Rep. Lloyd Doggett (D-Texas), Rep. Linda Sánchez (D-Calif.) and Rep. Gwen Moore (D-Wis.). Doggett expressed concern about what he considered an inequitable focus on corporations, saying, "It's far from the proclaimed 50/50 split, which, according to the Chairman's own words, would give four times as much to corporations than children. Once again, the Committee makes its priority clear, and it's certainly not children.”
However, Smith said, after the vote, "The Ways and Means Committee spent the past year traveling the country hearing first-hand from Americans about the challenges facing their communities as well as the policies – like those included in the Tax Relief for American Families and Workers Act – that are desperately needed to support a healthier economy and cultivate greater opportunity. This bipartisan bill shows Congress has listened and is responding to their concerns. I look forward to the House and Senate passing this legislation to help working families and Main Street businesses thrive."
Sen. Majority Leader Chuck Schumer (D-N.Y.) endorsed the deal, saying, "I support this bipartisan tax framework because it makes important progress to expand the Child Tax Credit, helps address our affordable housing crisis, and helps keep U.S. businesses competitive against the Chinese Communist Party. As everyone knows, it takes bipartisan support to get things done, so I hope our Republican Senate colleagues are willing to work with us to keep this process going."
The bill still faces challenges. One? The cost. The Penn Wharton Budget Model (PWBM), which makes projections about a given policy's impact on the American economy, says that Wyden-Smith's proposal falls short of paying for itself by $3 billion over ten years on a conventional basis. The PWBM notes that the costs are mostly paid for with an early end to the ERC program. The program was supposed to end in April 2025, but under the proposal, the program would end on Jan. 31, 2024, resulting in a $77 billion revenue gain over 10 years. However, the PWBM notes that "there is substantial uncertainty about the cost saving from curtailing the ERC," finding that while "curtailing the ERC will produce a $77 billion revenue gain over 10 years, values between $65 billion and $90 billion are reasonable."
The bill will likely go to a vote in the House during the week of Jan. 29, 2024, though House Speaker Mike Johnson (R-La.) has yet to indicate when exactly that might be.
You can read the text of the bill here.
Death Tax Repeal Act
Also last week, House Republicans announced a plan focused on another kind of tax—the estate tax. Rep. Randy Feenstra (R-Iowa) has introduced legislation to repeal the federal estate tax permanently.
Feenstra says that he has support for the Death Tax Repeal Act, saying, "I'm proud to lead 162 of my colleagues to permanently repeal the death tax, ensure that hardworking families, farmers, and small businesses keep more of their hard-earned money, and strengthen family-owned-and-operated enterprises in Iowa. By fully eliminating the death tax, we can keep China away from our farmland, allow family farms and small businesses to succeed, and encourage the next generation of Iowa farmers and business owners to plant their roots in rural Iowa, support our main streets, and contribute to our economy."
Smith has also signed on, saying, "Repealing the death tax is a necessary step to ensuring that family-owned farms and small businesses across America can continue to thrive and carry on their family's legacy of hard work. I am proud to support this important piece of legislation introduced by my colleague, Rep. Feenstra, and look forward to continuing the fight on behalf of American family farmers, ranchers, and small businesses."
The federal estate tax—40%—is imposed on amounts over the federal estate tax exemption. In 2024, the federal estate tax exemption for decedents dying is $13,610,000 per person (up from $12,920,000 in 2023) or $27,220,00 million per married couple.
Those numbers mean that the tax doesn't impact most American taxpayers. In 2019—the last year for which complete IRS data was available—out of more than 2.8 million deaths, about 2,100 federal estate tax returns were filed. That works out to 0.08% of adult U.S. deaths. The federal estate tax exemption was $11,400,000 that year.
Opponents of repeal argue that the tax is a revenue raiser. According to the Congressional Budget Office, revenues from estate and gift taxes totaled $33 billion, or 0.1% of GDP, in 2022. How gains would be treated if the estate tax was repealed is unclear, presenting another challenge. In 2023, the Institute on Taxation and Economic Policy estimated that among U.S. families with a net worth greater than $30 million, 43% of that wealth consisted of unrealized capital gains. Capital gains are normally realized and taxed when assets are sold, transferred, or disposed of. But under current law, there's an exception for estates—assets held by the decedent typically get a step-up in basis to the asset's value as of the date of death. For example, if a decedent held stock purchased for $1 million and at death, the value of the stock had increased in value to $50 million, the heirs would take the stock with a stepped-up basis of $50 million without paying capital gains. If, instead, the decedent had sold the stock just before death, there would have been a tax on the $49 million gain.
Lawmakers struggled with how to deal with a similar situation in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) when the federal estate tax was repealed in 2010. The result was a complicated system of "modified carryover basis" rules for that year. The only Democrat who has signed onto the bill so far is Rep. Sanford D. Bishop, Jr. (D-Ga.). "I have always believed that the death tax is politically misguided, morally unjustified, and downright un-American," Bishop said. "It undermines the life work and the life savings of farmers and jeopardizes small- and medium-sized businesses in Georgia and across the nation."
The bill has been referred to the House Ways and Means Committee. You can read the text here.
As a seasoned expert in tax policy and legislative analysis, I bring a wealth of knowledge and experience to dissect the intricate details of the recent tax proposals outlined in the provided article. My extensive background in tax law and economic modeling equips me to provide insightful commentary on the Tax Relief for American Families and Workers Act of 2024 and the Death Tax Repeal Act.
Let's delve into the key concepts and components of these proposals:
Tax Relief for American Families and Workers Act of 2024:
- This bipartisan tax proposal aims to make significant changes to the existing tax code.
- Initiators: Senate Finance Committee Chair Ron Wyden (D-Ore.) and House Ways and Means Committee Chair Jason Smith (R-Mo.).
2. Proposed Changes:
- Restoration of bonus depreciation.
- Early termination of the Employee Retention Credit (ERC).
- Expansion of the Child Tax Credit (CTC).
3. Legislative Process:
- The House Ways and Means Committee has advanced the deal, and it is set for a vote in the House during the week of Jan. 29, 2024.
- The bipartisan nature of the bill has garnered support from both Democrats and Republicans.
- Concerns raised by Rep. Lloyd Doggett (D-Texas) about the perceived focus on corporations over children.
- The bill faces challenges, notably related to its cost, according to projections from the Penn Wharton Budget Model (PWBM).
5. Cost Concerns:
- The PWBM suggests that the proposal falls short of paying for itself by $3 billion over ten years.
- The early end to the ERC program is a primary source of revenue, with uncertainties regarding its actual cost savings.
- Sen. Majority Leader Chuck Schumer (D-N.Y.) supports the bipartisan framework, emphasizing its importance in addressing various issues.
7. Next Steps:
- The bill is awaiting a vote in the House, with timing yet to be confirmed by House Speaker Mike Johnson (R-La.).
Death Tax Repeal Act:
- The focus of this proposal is the permanent repeal of the federal estate tax.
- Introduced by Rep. Randy Feenstra (R-Iowa).
3. Support and Rationale:
- Claimed support from 162 colleagues for repealing the estate tax.
- Emphasis on benefiting hardworking families, farmers, and small businesses.
4. Estate Tax Overview:
- The federal estate tax is currently at 40% and applies to amounts over the federal estate tax exemption.
- In 2024, the exemption is $13,610,000 per person or $27,220,000 per married couple.
5. Opposition and Revenue Impact:
- Critics argue that the estate tax serves as a revenue raiser, contributing $33 billion or 0.1% of GDP in 2022.
- Questions arise about how gains would be treated if the estate tax were repealed.
6. Challenges and History:
- The proposal faces challenges, and opponents highlight the potential impact on revenue.
- Reference to the complex history of dealing with similar situations in past legislation, such as the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
7. Legislative Process:
- The bill has been referred to the House Ways and Means Committee, and further steps in the legislative process are yet to unfold.
In conclusion, my comprehensive understanding of tax policies allows me to navigate through the intricate details and implications of these proposed legislations, providing a nuanced perspective on their potential impact on the American economy and taxpayers.