Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Wednesday, April 21, 2021

Study Shows Repealing Stepped-Up Basis Would Damage the Economy

Wealth taxA new report that was released on Tuesday shows that "repealing the step-up in basis tax provision would damage the gross domestic product (GDP) and significantly decrease job creation." The study found that middle-class, family-owned businesses would be hit the hardest by the repeal. 

As of now, a person that inherits assets is not taxed on the appreciation that happened before they inherited them. This is particularly important for family-owned farms and small businesses or manufacturers because if they are forced to pay capital gains that were accrued by the pervious owner, their business would be at risk. 

The study found that repealing the step-up in basis would result in: 

  •       80,000 fewer jobs in each of the first ten years;  
  •       100,000 fewer jobs each year thereafter; and
  •      A $32 reduction in workers’ wages  for every $100 raised by taxing capital gains at death. 

It would also reduce GDP relative to the U.S. economy in 2021, by approximately: 

  •       $10 billion annually;
  •       $100 billion over 10 years. 

According to Doug Bibby, President of the National Multifamily Housing Council, "[r]epealing stepped-up basis is not a free lunch for those looking to generate tax revenue and would have significant consequences in the multifamily marketplace." Bibby also mentioned that, absent stepped-up basis, the resulting depreciation recapture and capital gains taxes placed on heirs could "exceed their ability to pay without selling the asset." 

See Study Shows Repealing Stepped-Up Basis Would Damage the Economy, American Farm Bureau Federation: Newsroom, April 20, 2021. 

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.

https://lawprofessors.typepad.com/trusts_estates_prof/2021/04/study-shows-repealing-stepped-up-basis-would-damage-the-economy.html

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Comments

How incredibly shocking that the special interest groups representing those who benefit most from this loophole would be so against repealing it. In other news today, the Sun defied pundits' forecasts by setting in the West.

While not exactly a reliable source, the Tax Foundation also published an analysis early last year. This being TF, it has every reason to downplay the benefits, but in spite of itself, the analysis demonstrates that repeal has clear advantages in terms of fairness and revenue. Likewise, TF really struggled to come up with any purported drawbacks. Their best argument for downside was compliance costs. It's pretty generic because most any tax change will have some compliance costs, so it doesn't hold much weight as a specific counterargument to the proposal. Also, I laughed at the suggestion that complying would supposedly divert taxpayers away from "other productive activities". TF otherwise argues that repeal "would increase the tax burden on saving". But even if that's true, excessive saving doesn't particularly benefit the economy, so I'm not sure why that's a problem. (To show just how unreliable TF can be, one of the analysts is a GMU person and the other has since left to work for ... Marjorie Taylor Greene!)

https://taxfoundation.org/repealing-step-up-in-basis-analysis/

Posted by: hardreaders | Apr 21, 2021 7:10:01 PM

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