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S. 309: For the 99.8 Percent Act


Should the richest Americans be taxed on their properties and estates before passing them onto their children or descendants?

Context

Democrats call it the “estate tax,” while Republicans call it the “death tax.” Either way, it is a federal requirement that properties and estates over a certain amount be subject to a tax before they can be gifted to heirs, descendants, or children.

In practice, this often occurs when the property’s owner dies, hence the derogatory nickname “death tax.”

As part of 2017’s Republican tax reform law, many Republicans wanted to eliminate the estate tax entirely. Although that didn’t quite happen in the final law, the provision was weakened again, as it had several times previously in recent decades — in a way that significantly benefited the rich.

Some quick numbers. In 2016, the year before the law, the tax only kicked in for estates worth $10.9 million or higher for a couple, and $5.45 million or higher for an individual. Since 2017, the tax threshold doubled: now it only kicks in at an estate worth $22 million for a couple, or $11 million for an individual.

In practice, this means fewer than 1 in 1,000 estates are now subject to the tax. And those few which _are _still subject to it, the absolute richest of the rich, received a de facto average tax cut of $4.4 million as a result of the change.

What the legislation does

The For the 99.8 Percent Act would bring the estate tax threshold back down to estates worth at least $3.5 million, more than doubling the number of Americans subject to the tax.

The legislation was named because it would only apply to an estimated richest 0.2% of Americans. That’s a larger number than the number of Americans it currently applies to: less than 0.1%.

The Senate version was introduced on January 31 as bill number S. 309, by Sen. Bernie Sanders (I-VT). The House version was introduced almost nine months later on October 24 as bill number H.R. 4857, by Rep. Jimmy Gomez (D-CA34).

What supporters say

Supporters argue the legislation reduces inequality, doesn’t raise taxes on the middle- and lower-classes, and prevents dynastic inheritances as many other countries have.

“The ever-widening gap between the ultra-rich and the rest of us has reached alarming proportions and demands a strong legislative response,” Rep. Gomez said in a press release. “Through my legislation — the For the 99.8% Act — we can take a progressive step forward in addressing our country’s rapidly increasing wealth inequality by strengthening the estate tax and ensuring the wealthiest among us pay their fair share.”

“At a time of massive wealth and income inequality, when the three richest Americans own more wealth than 160 million Americans, it is literally beyond belief that the Republican leadership wants to provide hundreds of billions of dollars in tax breaks to the top 0.2 percent,” Sen. Sanders said in a separate press release. “Our bill does what the American people want by substantially increasing the estate tax on the wealthiest families in this country and dramatically reducing wealth inequality.”

What opponents say

Opponents counter that the estate tax burdens families and small businesses, and is an unfair provision in the tax code which punishes people who don’t deserve it.

“That means, especially for all of you with small businesses that are really tremendous businesses, you’ll be able to leave them to your family, and your family won’t have to run out and do a fire sale to try and get the money to pay the tax,” President Trump said in a 2017 Indiana speech at the Farm Bureau Building.

“The farmers in particular are affected. They have wonderful farms, but they can’t pay the tax, so they have to sell the farm,” Trump said. “So that death tax is a disaster for this country and a disaster for so many small businesses and farmers.”

(Actually, the Tax Policy Center calculated that only about 80 farms would pay any estate tax in 2017, representing less than 1% of estates subject to the tax. Most estates subject to the tax are more similar to Trump’s own.)

Odds of passage

The House version has attracted 37 Democratic cosponsors. It awaits a potential vote in the House Ways and Means Committee.

The Senate version has attracted one Democratic cosponsor: Sen. Kirsten Gillibrand (D-NY). Odds of passage are slim to none in the Republican-controlled Senate.

Last updated Nov 6, 2019. View all GovTrack summaries.

The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on Jan 31, 2019.


For the 99.8 Percent Act

This bill imposes increased tax rates on decedent estates, gifts, and generation-skipping transfers.

Estates with a value of over $1 billion are taxed at a 77% tax rate. The basic exclusion amount is reduced to $3.5 million.

The bill increases (1) to $3 million the reduction in valuations of farmland for estate tax purposes and adjusts such increased amount for inflation, and (2) to $2 million the maximum estate tax exclusion for contributions of conservation easements.

The bill requires (1) consistent basis reporting for property acquired by gift and transfers in trust, and (2) executors of estates and donors of gifts required to file a gift tax return to disclose to the Department of the Treasury, and to recipients of any interest in an estate or a gift, information identifying the value of each interest received.

The bill sets forth estate valuation rules for certain transfers of nonbusiness assets and limits estate tax discounts for certain individuals with minority interests in a business acquired from a decedent.

The bill expands rules for valuing assets in grantor retained annuity trusts to require that (1) the right to receive fixed amounts from an annuity last for a term of not less than 10 years and not more than the life expectancy of the annuitant plus 10 years, and that such fixed amounts not decrease during the first 10 years of the annuity term, and (2) the remainder interest have a value when transferred that is not less than the the greater of 25% of the fair market value of the trust property or $500,000. The bill also sets forth rules for the application of transfer taxes to a grantor trust (a trust in which the grantor retains control over the trust assets and has the right to receive income from the trust).

The bill eliminates the generation-skipping transfer tax exemption for any trust whose termination date is not greater than 50 years after its creation.

The bill modifies the gift tax exclusion for annual gifts (currently, $14,000).