Monthly Archives: September 2021

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Democrats may scuttle tactics used by the rich to pass wealth to heirs with little to no tax, part of a broader plan to raise money for an expansion of the U.S. safety net.

Specifically, the party is considering disallowing some complex trust-planning techniques used by wealthy Americans to avoid estate tax, according to a discussion list of potential tax reforms obtained by CNBC.

Congressional Democrats may also ask the Treasury Department to update regulations to "prevent the abuse of non-economic valuation discounts," according to the list. This concept applies, for example, to entrepreneurs who give a minority interest in their business to their kids at a discounted rate.

The reforms are largely aimed at multimillionaires or billionaires who use the strategies to remove wealth from their estate and transfer it to heirs tax-free, according to estate-tax experts.

"Basically, you've got this basket of loopholes that collectively can be used to defeat the estate tax at really any level, even billionaires," according to Robert Lord, counsel for progressive group Americans for Tax Fairness.

The list, a draft of ideas lawmakers assemble before formally pitching them in the House or Senate, doesn't contain many specifics. It identifies "grantor-retained annuity trusts" and "intentionally defective grantor trusts" as the trusts in question.

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Interestingly, Democrats don't seem to be weighing reforms to the estate tax itself, such as a higher tax rate or a reduced asset threshold that would subject more estates to federal levies.

A 40% federal tax rate currently applies to estates and gifts valued at more than $11.7 million for individuals and $23.4 million for married couples.

That asset threshold will fall after 2025 even if Democrats don't touch it, due to sunset provisions in the 2017 Tax Cuts and Jobs Act. (Roughly $6 million and $12 million, respectively, would be exempt from the tax half the current value at that time.)

Sen. Bernie Sanders, I-VT, and Senate Majority Leader Chuck Schumer, D-NY, on Capitol Hill on Aug. 9, 2021.

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The proposed estate-tax reforms are part of Democrats' broader theme of raising taxes on the wealthy to help fund climate, paid leave, childcare and education measures, the cost of which may be as high as $3.5 trillion.

President Joe Biden has said households earning less than $400,000 a year would not see a higher tax bill.

Some of the potential estate-tax reforms share elements of recent Democratic proposals, such as the "For the 99.5% Act" co-sponsored by several lawmakers like Sen. Bernie Sanders, I-Vt.

Critics argue the burden of some estate-tax reforms wouldn't only impact the rich but would extend to others like family farmers.

"Many Democrats love to talk about taxing the richest of the rich, but in reality, their proposals would hurt Main Street far more than Wall Street," Rep. Glenn Thompson, R-Penn., ranking member of the House Agriculture Committee, said of the various recent estate-tax proposals.

Let's look at grantor-retained annuity trusts, one of the techniques in question, as an example of how individuals sometimes use trusts to shield wealth from tax.

These trusts also known as GRATs have been leveraged by numerous millionaires and billionaires, including the Trump family, Facebook CEO Mark Zuckerberg, the Walton family (of Wal-Mart fame) and former Goldman Sachs Chairman Lloyd Blankfein. Casino magnate Sheldon Adelson, who died earlier this year, reportedly used the trusts to shield billions of dollars from tax.

Individuals often use the trusts to transfer assets that are expected to grow significantly in value, according to Charlie Douglas, a certified financial planner who runs a family office in Atlanta.

Generally, heirs benefit from tax-free appreciation and the owner reduces or avoids a federal estate or gift tax. (The concept is similar for the aforementioned intentionally defective grantor trusts and valuation discounts, Douglas said.)

Let's say an individual puts $1 million of stock into a GRAT with a term of two years. The stock grows 50%, or $500,000, over that period. The trust yields a double benefit: Heirs get the $500,000 growth without tax and the appreciation is removed from the owner's estate, thereby limiting or perhaps even eliminating tax the estate owes upon the owner's death. It becomes the equivalent of a tax-free gift. (The owner would get back the $1 million principal plus a small amount of interest.)

Tax experts say some gaming can also occur, whereby owners intentionally lowball the value of an asset (like real estate) placed in the trust. Heirs would get more tax-free wealth as a result.

The "For the 99.5% Act," a guide for how Democrats may be thinking of new rules, would restrict these trusts as a wealth-transfer tool.

The legislation would increase the amount of time assets must remain in the trust to a minimum 10 years a potential deterrent since tax benefits are lost if the owner dies before the end of the term. Asset appreciation would also no longer be 100% tax-free, for example.

However, these policies may not end up in a final Democrat bill, or may be significantly amended if they do.

"If anybody says they know what's going to happen, they're crazy," Douglas said.

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Democrats may rein in big estates without reforming the estate tax - CNBC

The SALT deduction, as the tax break is known, was pitched as a break for middle-class taxpayers in high-tax states most blue ones by giving them some relief on their taxes in the form of a federal tax deduction for state and local taxes they paid.

But a law ushered by the Trump administration capped deductions at $10,000, a move that mostly impacted the highest-earning residents of high-tax states like Massachusetts, New York, New Jersey, and California because many top-earning taxpayers could no longer deduct the full amount of their local tax liability.

Now, as Democrats hash out the details of their budget plan a plan that will need near-unanimous support on their side of the aisle in both houses of Congress, given the Democrats razor-thin majorities some lawmakers are drawing a line in the sand on lifting or repealing that SALT deduction limit.

Leading the call to repeal the SALT deduction cap altogether is Tom Suozzi, a Democrat from New York.

That would be a great political victory because it would help a lot of people in my district and in many districts throughout the country, Suozzi said last week.

Certainly high earners in Suozzis district and elsewhere would reap the benefit of his proposal. But studies, including one by the Tax Policy Center, showed that 96 percent of the savings from the SALT deduction went to the top 20 percent of wage earners, proof that it is not at all a lifeline for the middle class.

On its face, it sounds good to say that Congress should offer tax relief during a pandemic, said Richard V. Reeves, a senior fellow in Economic Studies at the Brookings Institution.

But the people who will benefit from lifting the SALT cap are not the people who were hurt by the pandemic, Reeves said. If the idea here is to help the people who were hardest hit, then this is the least well-targeted policy in economic history because the pandemic disproportionately hit people in lower-income jobs.

Few, if any, essential front-line employees and wage workers who suffered the most economically over the last year and a half are in the position to claim enough itemized deductions to even qualify for the SALT deduction. And the top 20 percent didnt feel the pandemic pain in nearly the same way.

Margaret Boyle, spokeswoman for House Ways and Means Committee chairman Richard Neal, who is helping hash of the bill, said in an e-mail that Neal is continuing to work with members on a path forward on this issue.

Meanwhile, some of the wealthiest earners in several states, including Massachusetts, already got a big boost from state law workarounds to the SALT deduction caps, allowing them to still claim federal deductions for state and local taxes if they have a pass-through company that will let them do so.

That too is an unfortunate move depriving federal coffers of needed funding for other crucial programs, but it also undercuts the urgency of calls from Suozzi and others that the budget bill should be held up on this issue if states are acting on their own.

Lawmakers should draw their own line and send a clear message: There is no good time to push tax breaks for the rich at the expense of programs for the lower and middle classes. But during a pandemic recovery is the worst time.

Editorials represent the views of the Boston Globe Editorial Board. Follow us on Twitter at @GlobeOpinion.

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Its the worst time for Democrats to push tax breaks for the rich - The Boston Globe

Democrats on the Ways and Means Committee are set to begin considering a huge chunk of their party-line bill on Thursday, yet are already privately predicting they'll end up getting strong-armed by the White House and Senate into taking the Medicare expansion championed by Sen. Bernie Sanders at the expense of the ACA.

And the angst on the left is more complicated than the typical progressives-versus-moderates dynamic it's the latest chapter in a long-running debate between those who want to focus on shoring up Obamacare and those who want to move toward a "Medicare for All"-style model. As both factions battle, the bulk of President Joe Biden's domestic agenda is hanging in the balance.

Im not going to be quietly sitting on the sidelines and watching all the people eligible for Medicare treated royally and the people who depend on Medicaid be neglected, House Majority Whip Jim Clyburn (D-S.C.) said, noting hes made Biden aware of his preference for solidifying an Obamacare Medicaid expansion aimed at low-income Americans, including minority communities in red states like his. Ill stand up to anybody with that position. I dont care who it is.

On its surface, the health care clash pits Sanders, the Senate Budget Committee chair, against House Speaker Nancy Pelosi and her leadership team, who are leading the charge to shore up the Affordable Care Act. Yet its roots go deeper: Senate Majority Leader Chuck Schumer, who never signed onto Sanders' Medicare for All bill, is in his corner for the current clash as the upper chamber digs in to defend its approach to the multitrillion-dollar social spending bill. Schumer touted a "robust and historic expansion of Medicare" to reporters on Wednesday morning.

While Pelosi and her allies also support the Medicare benefits a senior Democratic aide noted that theyve been part of the speakers drug bill for years they and several outside advocacy groups are pushing the party to prioritize the populations most vulnerable to prospective GOP rollbacks of the health law.

On Wednesday, Pelosi publicly downplayed the battle, saying "both will be present; thats not a problem." But behind the scenes, the House leadership camp argues that taking away benefits from seniors on Medicare would be more politically difficult for a future Republican Congress.

Meanwhile, the House progressive camp wants to spend significant money on expanding Medicare to cover vision, hearing and dental benefits for seniors. But despite the massive size of Democrats bill, theres not enough money in their pot to please everyone. Even the ambitious draft plan released by Ways and Means Chair Richard Neal (D-Mass.) Tuesday night, which a source close to the negotiations warned had not received White House or Senate buy-in, caused agita on the left.

That's because the Ways and Means proposal wouldn't fully phase in dental benefits until 2032. Progressives say theyve already compromised enough, arguing that they've already backed down on Medicare for All and lowering Medicare's eligibility age.

"We need to be 100 percent for universal health care, and we are so far from that today," said Rep. Pramila Jayapal (D-Wash.), the Progressive Caucus chief who is pushing for Medicare to cover more people with more generous benefits. "We need to recognize that while the ACA did many good things, just providing subsidies to private insurance is not the way to move forward."

The left's disappointment extends beyond the pace of the dental benefits roll-out, though negotiations are ongoing. Only half the cost of major dental procedures would be covered far less than the 80 percent some advocates had demanded. And many key expenses, like over-the-counter hearing aids, wouldnt be covered at all.

Rep. Lloyd Doggett (D-Texas), who chairs the Ways and Means subcommittee that will begin marking up the legislation on Thursday, is concerned that the limited coverage previewed Tuesday would put the new dental benefits out of reach for low-income seniors.

Its false hope for poor people, he lamented. They wont be able to use the service.

But while skimping on new Medicare benefits may anger progressives, it frees up scarce dollars for shoring up Obamacare and expanding Medicaid to cover 2 million uninsured people in red states that didn't expand their programs under Obamacare top priorities for Pelosi and House moderates, as well as progressives like Doggett who represent states that have refused to expand Medicaid on their own.

House leadership argues that the enhanced Obamacare subsidies Congress approved in March, which are set to expire at the end of next year, have to be made permanent given the likelihood that a future Republican majority could refuse to extend them later on. ACA supporters point to the fact that the temporary Obamacare enhancements were a major reason why the rate of uninsured people didnt soar when millions lost their jobs during the pandemic.

Im not going to pick among my children, said Rep. Diana DeGette (D-Colo.), referencing the different Democratic health components of the social spending bill. But we need to keep the ACA subsidies thats what is enabling millions of people to get health care coverage.

The House committee markups that will last through this week and next wont fully resolve the dispute. Not only does the full House still have to debate, amend and pass its bill, but the Senate where Democrats have a much slimmer majority and a more centrist caucus that will likely chafe at the Ways and Means approach will have its say in the coming months.

And the health care question is just one of many consequential policy battles Democrats will have to litigate quickly if they want to get the social spending plan to Bidens desk this fall, as planned. The ambitious legislation will try to encompass everything from paid family leave to action on climate and an overhaul of the nations immigration laws.

But the mounting tension over health care goals is pushing leadership to investigate every option. Aides to Pelosi this week embarked on a long-shot search for more sources of revenue or savings in addition to the hundreds of billions of dollars expected from the bill's bid to let Medicare negotiate the price of some drugs, according to two Democratic sources. If that pays off, it could allow more spending on both public and private insurance.

Yet most Democrats see inevitable and tough choices on how to spend the health care dollars on the table.

Im very much aware of the competing priorities here, and theyre all meritorious, Doggett said. But theres clearly not enough revenue to do all that needs to be done."

Originally posted here:

Democrats reopen old health care wounds with $3.5T mega-bill on the line - POLITICO

Low-income communities and people of color tend to be especially vulnerable to the effects of climate change because of historic inequities. In recognition of that fact, legislation introduced by Senator Edward J. Markey of Massachusetts and Representative Alexandria Ocasio-Cortez of New York, both Democrats, would require that at least half the members of a climate corps come from under-resourced communities of need. In addition, at least half the investment would support projects in underserved communities, with at least 10 percent spent in Native American lands.

Their bill, which has support from major environmental groups like the Sunrise Movement, would create the climate corps as part of AmeriCorps.

Tens of thousands of young people are going to be working to future-proof our country, Mr. Markey said. Within five years, he added, a Civilian Climate Corps will become part of the personality of the country in terms of how a whole new generation views climate change.

That has some Republicans worried.

What exactly does that mean? Representative Tom McClintock of California asked at a recent hearing. Does it mean a taxpayer funded community organizing effort? Young climate pioneers in every neighborhood to report on who is watering their lawn, whose fireplace is smoking, who is spreading forbidden climate disinformation?

Others noted that President Franklin Delano Roosevelts conservation corps was created when the United States was suffering from 20 percent unemployment. Thats not the current situation, where the national unemployment rate was 5.2 percent in August and many companies are having difficulty finding workers.

Representative Bruce Westerman of Arkansas, the top Republican on the House Committee on Natural Resources, called the Civilian Climate Corps a make-work program that will compete against American businesses at a time when help wanted signs remain in the windows.

Ultimately, however, Republicans are not in a position to influence the package since the party has already signaled members will unanimously oppose the broader $3.5 trillion budget bill. The fate of the program is up to Democrats and whether they can reach agreement, supporters of the climate corps said.

Originally posted here:

Democrats Want a Climate Corps. They Just Cant Agree How to Create It. - The New York Times