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“And hey. I met you. You are not cool…The only true currency in this bankrupt world is what you share with someone else when you’re uncool,” says the character Lester Bangs to William Miller, a 15-year-old writer for Rolling Stone magazine in the movie “Almost Famous.”
Though Bangs is sharing his insights on the art of writing about the music industry, this idea can apply to almost any topic worthy of writing about.
I enjoy writing about tax legislation, which probably makes me uncool. In the theme of what was “almost famous,” here’s a breakdown of the major tax legislation that has been proposed over the years yet failed to come into being.
1. Hiring IRS agents; Eliminate the IRS
The Republican House recently passed legislation to reverse the decision to hire 87,000 IRS Agents (some of whom were replacements for retirees.)1Additionally, there is a proposal to eliminate the IRS altogether and implement a consumption tax in
lieu of an income tax.2Neither has a chance to pass a Democratic Senate, nor obtain a signature into law from President Biden.
Because of the split between the House Republicans, Senate Democrats and Democratic president, it’s unlikely they will pass major income or estate and gift tax legislation into law prior to the end of President Biden’s first term either.
2. Estate and gift tax exemption
In late 2010, Congress passed a two-year exemption at $5 million adjusted for inflation. That estate and gift tax exemption was set after there was no estate tax in 2010, due to the Economic Growth and Tax Relief and Reconciliation Act of 2001.3
With the repeal of the State Death Tax Credit starting in 2004 (after being phased out) and becoming a State Death Tax Deduction,4 no estate tax in 2010, and a reintroduction of the estate tax at a $1 million exemption in 2011 (again, due to budgetary rules)4 most thought some legislation would be passed prior to the end of the decade.
Only when faced with an impasse from the incoming Republican House and Senate was a compromise struck for a $5 million exemption tied to inflation. At the end of 2012, we were again headed over a cliff with a pending $1 million exemption for 2013. Barely beyond the last minute, Congress passed the American Taxpayer Relief Act of 2012, effective for 2013 and afterward.5The law was passed on January 1, 2013, and signed into law on January 2, 2013.
In 2012, Republican candidate Mitt Romney proposed eliminating the estate tax.6When Republican President Donald Trump had a Republican House and Senate, the best he could do was double the exemption for eight years.5
While there was discussion of then Democratic presidential candidate Joe Biden returning to normal estate tax exemptions and rates, which many interpreted as a $3.5 million exemption,7and proposed taxation on unrealized gains for those over $100 million in total net worth,8those proposals did not come to fruition. The Inflation Reduction Act of 2022 did not even touch estate and gift tax laws, nor any individual income tax.9
Strangely, the biggest tax change may come through the passage of no legislation at all. The estate and gift tax exemption is set to expire on January 1, 2026. Currently, the 2023 estate and gift tax exemption is $12.92 million,10 and will increase through December 31, 2025 based on inflation. If no legislation is passed prior to then, the exemption will be cut in half. So, instead of an exemption of $15 million for example, the exemption may be cut down to $7.5 million, beginning January 1, 2026.
3. Tax Cuts and Jobs Act
Under the Tax Cuts and Jobs Act passed in 2017 under the Trump Administration, the exemption was doubled from $5.49 million adjusted for inflation in 2017 to $11.18 million in 2018. The exemption continues to be adjusted for inflation, but due to budget rules the doubling of this exemption will expire after eight years.11
So, what’s the takeaway?
Passing major tax legislation is difficult! Formerly enacting any sort of reform has required either going off of a cliff into an adverse tax situation or one party having control of all branches. Even when one party has the House, Senate and Presidency, major tax legislation is not guaranteed, as we have seen in the last two years. Over the next Congress, expect a lot of noise. But, until a compromise is reached, or more likely, the next Congress prepares to go off a cliff, all proposals are only… Almost Famous.
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