Permanent Estate Tax Repeal May Be A Laudable Goal, But Because Estate Tax Repeal Makes Revenue Challenges Even More Difficult, Repeal Is A Long, Long Way from Assured; Clients Are Not Well-Advised to Interrupt Their Planning
Both President Trump and House Republicans have put forth proposals that would significantly reduce revenues to the government. The Tax Policy Center estimated that Trump’s overall campaign plan (which is very similar to his one-page proposal released last month) would reduce revenues by $6.2 trillion over 10 years, and the more conservative Tax Foundation estimated a revenue loss of $2.6 trillion to $3.9 trillion after accounting for greater economic growth. And this was without a 15 percent pass-through rate, which would likely add trillions of dollars to the estimated revenue losses from these organizations.
Treasury Secretary Mnuchin says the tax cuts outlined by the Trump Administration will pay for themselves with economic growth. Yet it’s widely disputed by economists on the left and the right. For example, Douglas Eakin-Holtz, a former Director of the Congressional Budget Office and economic advisor in the George W. Bush Administration, cautioned against the assumption that tax cuts will pay for themselves, suggesting that if interest on the national debt continues to steadily increase it could cancel out the benefits of reducing taxes.
Repealing the estate tax costs $275 billion over 10 years, a costly contributor to the significant revenue challenges outlined above.
Some Republicans will likely prefer not to waste political and policy capital on an issue that largely has been “solved.” In fact, some trade groups – who in the past have supported repeal – no longer advocate in favor of repeal because current law has solved the estate tax issue for them.
Add to this landscape the reductions to Medicaid funding proposed by the 2018 budget recently introduced by the White House Budget Director, and the budgetary and political optics of estate tax repeal become very difficult.
The Congressional Calendar and Senate Environment Pose Additional Hurdles for Tax Reform
The Congressional calendar will continue to hamper Republicans in their quest for a quick passage of tax reform.
Health care reform is the biggest immediate hurdle, as it creates a procedural bind for Republicans. House leaders can’t introduce a FY 18 budget resolution to use for tax reform until health care has been enacted—because as soon as the FY 18 resolution is introduced, the FY 17 resolution can no longer be used.
In addition to tacking health care and tax reform, Congress will need to raise the debt ceiling sometime this fall, reauthorize funding for SCHIP and the FAA, and confirm a number of key unfilled cabinet positions.
These efforts will take place in a tense Senate environment, where the firing of FBI Director James Comey further strains a Senate environment already roiled by the use of the nuclear option in the nomination of Neil Gorsuch to the Supreme Court.