Scott Roberts, CPA, CLU
Director of Estate Planning
With the election of Donald Trump as President, and his previous comments regarding wanting to permanently repeal the estate tax, along with Republican control of both the House of Representatives and Senate, is it possible that the death of the death tax is imminent?
Hardly. While permanent repeal is an interesting talking point, and one that can quickly devolve into congressional rules and procedures, permanent repeal of the estate tax is highly unlikely for reasons that fall into three main categories: political, procedural and practical.
Politically, the estate tax is not the “hot button” issue it once was when minimum wage earners were bemoaning the “death tax” due to canny marketing that led to flagrant misunderstanding about whom would be subject to the tax. More importantly, however, most Republican lawmakers feel the estate tax issue was settled, permanently, in 2012 when a huge increase in the exemption (indexed to inflation) meant that less than 1/2 of 1% of the population would be subject to it. With many more juicy tax reforms up in the air (can you say “carried interest”?), not to mention a likely overall reduction in tax rates, most would agree that estate tax repeal will be among the first sacrificed for agenda items that affect more voters.
Procedurally, tax legislation always starts in the House of Representatives but ends up being an exercise in what the Senate will allow. And the Senate can only allow what its rules will allow. As a stand-alone bill, estate tax repeal would only require 51 votes in the Senate to pass (52 Senators are expected to be Republican). However, Senators can extend debate (filibuster) and postpone a vote indefinitely (with some help), effectively blocking the legislation. A filibuster can only be broken with 60 votes, a number the Republicans don’t have without serious defections by Democrats.
Of course, there is another path – that of budget resolution reconciliation. A budget resolution containing estate tax repeal could be passed and sent to the Senate for reconciliation and vote, a process that limits debate and, therefore, prohibits filibusters. So, clear sailing for a Republican-controlled Senate, right? Nope, sorry. The reconciliation process is subject to the Byrd Rule (named after the late Senator Robert Byrd of West Virginia) which allows any Senator to block legislation that will increase the deficit beyond the term covered by the budget resolution (typically 10 years). Guess how many votes are required to overturn a Byrd Rule objection? Yep, 60. So we are back to square one, right? Not exactly.
It is possible that the estate tax repeal legislation could be crafted so that it “sunsets” (i.e. goes away) after 10 years. That way, it would not be subject to a Byrd Rule objection and would, therefore, only require 51 votes in the reconciliation process. This is exactly what happened in 2001 when George W. Bush was president and Republicans controlled the House and Senate for four years. The best they could do was pass the 2001 EGTRA legislation which, after increasing the estate tax exemption over a period of years, repealed the estate tax for one year (2010) before sunsetting in 2011 and reverting to the 2001 law.
So, as a practical matter, without significant further Republican gains in the Senate, there is no path to permanent estate tax repeal. But let’s go so far as to say that happens during a Trump presidency, allowing filibusters to be busted and “permanent” estate tax repeal to be enacted. Even in that very unlikely scenario, is it really permanent? Many would say no because a future administration could be just as likely to reinstate a tax that has remained remarkably resilient since 1916, and came and went no fewer than four times before that, most famously to help fund the Civil War.
So, to paraphrase a misquoted Mark Twain, the rumors of the death of the death tax have been greatly exaggerated.
This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation. LPL Financial does not provide legal advice or services.