President Joe Biden and his economic team are planning to forgo an expansion of the estate tax in the administration’s coming individual tax-hike proposals, according to people briefed on the plan.
Biden during the 2020 campaign pledged to increase the estate tax, along with raising rates on capital gains and corporate income, as part of an effort to force companies and the wealthy to pay a greater share of federal revenue. But the estate-tax boost won’t be part of the funding measures in the “American Families Plan” the president will unveil Wednesday, the people said, asking not to be named as the plan isn’t yet public.
Included in the plan is a near doubling in the capital-gains rate for the wealthy, Bloomberg has reported. The White House decided that that move was dramatic enough that the estate-tax hike could be excluded, according to people familiar with the discussions. Aides also did not want to include policy items unless they knew they had the backing of congressional Democrats, those people said.
The White House press office did not immediately respond to a request for comment.
The estate tax is a levy of up to 40% on the richest Americans when they die. For 2021, an individual can leave up to $11.7 million to heirs or $23.4 million for a married couple before the estate tax kicks in.
The exclusion of a hike in the estate tax is noteworthy to both progressive groups and liberal economists, because Biden had made taxing the rich such a central part of his campaign and presidency — and advocates view an estate-tax hike as one way to dismantle wealth passed along within families that’s often not subject to taxation.
Still, Biden’s coming tax package will feature an end to a major benefit for wealthy estates that drastically minimizes the levy for inheritors.
Ending “step up in basis,” which allows heirs to use the market value of assets at the time of inheritance rather than the actual purchase price as the cost basis for capital gains when the holdings are sold, would mean much higher tax bills for wealthy estates. Congressional Democratic proposals have exempted a share of assets from tax — one Senate plan provides for $1 million — but the specifics of Biden’s measure aren’t yet clear.
Read More: Biden Aims to End ‘Step Up in Basis’ Benefit for Estates
The estates of just 1,900 of the people who died in 2020 are liable for the estate tax — less than 0.1% of those who passed away — according to estimates from the Urban-Brookings Tax Policy center.
Biden had campaigned on lowering the exemption to $3.5 million so it would enlarge the net. Republicans, who have branded it the “death tax,” say it’s unfair, punishes successful individuals from passing on wealth to their children and hurts small business owners and family farms.
The current $11.7 million exemption is one of the highest levels in recent history. Two decades ago, it was just $675,000.
Biden’s decision not to touch it is a win for supporters of President Donald Trump’s 2017 tax reductions, which roughly doubled the exemption. Even so, many portions of Trump’s tax changes — including the estate tax — are set to expire at the end of 2025, so the threshold will automatically step down in the coming years if Congress does not act before then.