Thursday, February 20, 2020
The race for the next presidential candidate on the Democratic ticket is starting to heat up, and the main talking points currently are climate change, infrastructure, and health insurance. But there are two points that matter to high wealth Americans: (1) lowering exemptions and raising rates for the estate and gift taxes, and (2) ending the valuation discount for closely held family businesses.
Under the Tax Cuts and Jobs Act (TCJA) of 2017, the current exemption amount for the federal estate tax was raised to $11.4 million for an individual and $23 million for a couple. Anything above that threshold is taxed at 40%. That exemption amount will remain in effect until 2025 or unless it is lowered by other legislation. Many progressive candidates have it stated in their campaign that they would like to lower that threshold and possibly even increase the tax rate above the exemption amount. If a Democrat does win the office of president, it is highly likely that these may occur. Chris Pegg, senior director of wealth planning for Wells Fargo Private Bank, says that "we’ve never had exemptions this large, and we’ve never had candidates talking about wealth redistribution. If you look at some of the dials that are most likely to be turned, I think the estate tax is one of them.”
Shortly after taking office, President Trump issued an executive order that told the Treasury Department to withdraw the regulations placed by President Obama that disallowed discounts for closely held family businesses. “Those regulations were shelved; they weren’t unwritten,” Pegg said. Though many progressive candidates are mentioning disallowing the discounts, the move would affect all family owned small businesses, not just those owned by the "1%," says Bill Smith, managing director in the national tax office of at CBIZ MHM, an accounting firm.
See Paul Sullivan, 2 Tax Strategies to Consider Ahead of the 2020 Election, New York Times, February 14, 2020.
Special thanks to Matthew Bogin, (Esq., Bogin Law), Joel C. Dobris (Professor of Law, UC Davis School of Law), and Mark J. Bade (CPA, GCMA, St. Louis, Missouri) for bringing this article to my attention.