Kamala Harris Endorses American Housing and Economic Mobility Act Tax Proposals
HOUSTON, TEXAS - JULY 25: Vice President Kamala Harris speaks at the American Federation of Teachers' 88th National Convention on July 25, 2024 in Houston, Texas. The American Federation of Teachers is the first labor union to endorse Harris for president since announcing her campaign. (Photo by Montinique Monroe/Getty Images)
FORBES- In a significant development, the Kamela Harris presidential campaign has announced its endorsement of the estate tax reforms outlined in the American Housing and Economic Mobility Act of 2024. This support from the Harris campaign is expected to galvanize broader Democratic backing for the bill, potentially enhancing its chances of passage. By aligning with these tax proposals, the Harris campaign is positioning itself as a champion of economic justice and housing affordability—key issues in the upcoming election.
Overview of the American Housing and Economic Mobility Act of 2024
Introduced by Representative Emanuel Cleaver, the American Housing and Economic Mobility Act of 2024 aims to address critical housing affordability and related economic challenges across the United States. This comprehensive legislation encompasses a wide range of measures designed to alleviate the housing crisis, reduce costs for renters, facilitate home purchases, and implement significant tax reforms. The bill has garnered substantial support from various nonprofit and advocacy groups, as well as key senators like Elizabeth Warren and Raphael Warnock. Its prospects for passage, however, hinge on successful negotiations within the Democrat-majority Senate and broader Congressional approval. The bill’s chances may be further bolstered if integrated into larger legislative initiatives, such as the American Jobs Plan.
Estate Tax Reforms
One of the most impactful aspects of the bill is its proposed changes to the estate tax system. The American Housing and Economic Mobility Act of 2024 aims to revert estate tax thresholds to the levels that existed at the end of the George W. Bush administration. Key proposals include:
New Estate Tax Rates: The proposed estate tax rates are structured progressively, with a 55% tax on estates valued up to $13 million, 60% on amounts over $13 million but not exceeding $93 million, and 65% on amounts over $93 million.
Lowered Exemption Threshold: The estate tax exemption threshold is set to be reduced to $3.5 million, a level last seen in 2009. This reduction aims to increase the number of estates subject to the estate tax and generate additional federal revenue.
Surcharge on High-Income Estates and Trusts: The bill introduces a new surcharge on high-income estates and trusts, consisting of a 5% tax on the portion of the modified adjusted gross income (MAGI) that exceeds $200,000, and an additional 3% tax on the portion that exceeds $500,000. Notably, charitable trusts are exempt from this surcharge.
Limitations on Foreign Tax Credit: The legislation proposes amendments to limit the foreign tax credit for estates and trusts, adjusting it to reflect the highest applicable tax rate.
Option to Elect Corporate Tax Rates: An innovative feature allows individuals to elect to be taxed at corporate rates, with corresponding adjustments to the tax code.
Interest on Tax Deferrals: The bill addresses interest on deferred tax liabilities for estates and trusts, proposing modifications to the applicable tax rates to reflect current economic conditions.
Likely Impact on Estates if Passed
If enacted, the American Housing and Economic Mobility Act of 2024 would have profound effects on estate planning and wealth transfer strategies. The reduction in the estate tax exemption threshold to $3.5 million would significantly increase the number of estates subject to federal estate taxes. This could lead to a substantial increase in estate tax liabilities, particularly for high-net-worth individuals, necessitating more sophisticated estate planning techniques to mitigate tax exposure. Moreover, the progressive tax rates and surcharges on high-income estates and trusts are likely to incentivize charitable giving and other tax-efficient strategies to minimize taxable estates.
It is anticipated that there will be intense planning around locking in the current exemption amount before the end of 2024. However, learning from 2011, there will also be a desire to undo any planning if it turns out the reforms are not passed as proposed.
Historical Context of the Proposal
The proposal to revert estate tax thresholds to pre-2010 levels and introduce progressive rates is not without precedent. The estate tax has been a contentious issue in U.S. tax policy for decades, with significant changes occurring during both the George W. Bush and Barack Obama administrations. The estate tax exemption was gradually increased during the Bush administration, reaching $5 million per individual by 2010. Subsequent adjustments under the Tax Cuts and Jobs Act of 2017 further increased the exemption to $11.7 million per individual, significantly reducing the number of estates subject to the tax. The current proposal seeks to roll back these changes to increase federal revenue and address wealth inequality, reflecting a broader shift towards more progressive tax policies.
Conclusion
The American Housing and Economic Mobility Act of 2024 represents a concerted effort to tackle the housing crisis and address economic disparities through a combination of housing initiatives and tax reforms. The proposed estate tax changes, in particular, would have far-reaching implications for estate planning and wealth management in the United States. With the recent endorsement by the Harris campaign, the bill has gained new momentum, bringing the prospect of substantial tax reform closer to reality. As the bill moves through the legislative process, its success will depend on broad political support and its integration into larger policy frameworks. If passed, the Act could reshape the landscape of housing and tax policy in the country, with lasting effects on future generations.