Proponents of the Estate Tax insist that accumulated wealth should be taxed and loopholes closed.
Opponents argue this is the wrong way to do it, and capital gains tax would raise more revenue.
Both sides insist there should be no reduction in revenue at this time.
The ASSET plan is to replace the Estate Tax with a Capital Gains Tax.
Under the ASSET plan, estate property passes to heirs without the current step-up in the value. When that inherited property is sold the capital gains tax paid on it will exceed current estate and gift tax revenue.
The capital gains tax is not due at the time of death, it is due when or if the asset is sold by the heir that inherits it. There are no time constraints, so no fire sale is required. If the asset is not sold, for example a family business or a family farm, the capital gains tax is never paid. But the government and the economy benefit from taxes paid by the ongoing concern and the jobs provided.
Revenue may be reduced in the time between the change in the law and the influx of capital gains taxes on the sale of estate assets. To prevent this there will be a temporary transition cost of 1.5% to 2% of the Adjusted Gross Income (AGI) of taxpayers reporting more than $1 million income annually.
Inherited assets from those estates will be tracked by the IRS so that the temporary charge can be reduced as revenues from capital gains taxes increase until it is eliminated. Additional revenue will go to the treasury.
The taxpayers we’ve talked to who would be paying 1.5% to 2% ($15-$20k per million) are not concerned about the time it takes to eliminate the charge because it is less than what they’re paying now in tax avoidance costs like life insurance etc.
We expect the transition to take less than 10 years because the entire estate and gift tax revenue is less than 2% of the AGI of these taxpayers. Most of their assets have been placed in trusts valued at many times the 2%. It is obvious to us that billions of dollars in assets have been locked away in trusts and we believe the capital gains tax on those assets will quickly exceed today’s estate tax.