The White House and congressional Republicans are moving further apart on taxes, even as they are supposed to be negotiating over tax reform.
The Republican-led House is set to vote Thursday on a bill to repeal the estate tax, an effort that the Obama administration has seized upon this week as evidence that Republicans are more concerned about wealthy people rather than the middle class.
The bill, authored by Rep. Kevin Brady of Texas, would repeal the 40 percent tax that applies to estates, exempting the first $5.5 million or $11 million for married couples.
It would be a “new $270 billion tax cut for the very wealthiest of the wealthy,” Obama warned Wednesday in a town hall appearance with women bloggers in North Carolina, citing an estimate from the Joint Committee on Taxation.
The same projection found that the legislation would benefit about 5,500 families, versus the 44 million families that Obama says the tax breaks in his budget would help. Obama says the GOP bill would benefit only 120 households in North Carolina.
Brady’s bill and Obama’s budget proposal are even further apart than they seem at first.
Unlike past Republican bills to undo what the GOP calls the death tax, the GOP legislation would keep a provision of the tax code that allows heirs to avoid capital gains taxes on assets they inherit. It imposes the capital gains tax only on the increase in value during the time they owned the asset, not on the increase that occurred during the decedent’s life.
The “step up in basis,” as it is called, means that capital gains essentially go untaxed if they are passed on through inheritance. Currently, they are taxed, separately, through the estate tax, but the GOP bill would remove that as well.
On Monday, Obama economic adviser Jason Furman said that provision makes the Brady bill “more regressive” than past Republican bills to repeal the estate tax.
Obama on Wednesday called it a “trust fund loophole,” and excoriated Republicans for retaining it in their proposal.
“You gotta have some priorities here,” the president said.
In his own budget, Obama went the opposite direction, proposing to raise the top capital gains tax rate from 23.8 percent to 28 percent and to eliminate the step up in basis.
Republicans favor repealing the estate tax partly as a matter of fairness. For a small number of family-owned farms, ranches and small businesses, the estate tax can make it hard for the younger generation to maintain the businesses.
At least one Democrat, Rep. Sanford Bishop of Georgia, also favors repeal of the tax for the same reason.
But the number of businesses affected is small: Just 20 of the roughly 4,000 decedents who paid the estate tax in 2013 owned family farms or small businesses, the nonpartisan Tax Policy Center estimated.
Combined with the tax changes assumed in the GOP budget that the White House argues would yield tax cuts for top earners, the estate tax repeal is an instance of congressional Republicans moving in the opposite direction of Obama on taxes.
The two sides say they are working toward a compromise on business tax reform behind the scenes. Furman said Monday that there was agreement on a “high level” about lowering business tax rates while eliminating credits, deductions and preferences, but that the devil was in the details. Key Republican negotiators, including House Ways and Means Committee Chairman Paul Ryan, R-Wis., have made similar statements recently.
Nevertheless, Obama has not been able to resist trying to score political points on Republican plans.
“We don’t need tax cuts for millionaires and billionaires,” Obama said of the GOP plans Wednesday, echoing rhetoric the White House has used during Tax Week.
