In a significant development, Kamela Harris’ presidential campaign has announced its support for the estate tax reforms included in the American Housing and Economic Mobility Act of 2024. This support from the Harris campaign is expected to generate broader Democratic support for the bill, potentially increasing its chances of passage. By joining 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

The American Housing and Economic Mobility Act of 2024, introduced by Representative Emanuel Cleaver, aims to address the critical issues of housing affordability and related economic challenges across the United States. This comprehensive bill includes a wide range of measures designed to alleviate the housing crisis, reduce costs for renters, make homebuying easier, and implement significant tax reforms. The bill has received significant support from various nonprofit and advocacy groups, as well as key Senators such as Elizabeth Warren and Raphael Warnock. However, its prospects for passage depend on successful negotiations in the Democratic-majority Senate and broader congressional approval. The bill’s chances could further increase if it is integrated into larger legislative initiatives such as the American Jobs Plan.

Inheritance tax reforms

One of the most impactful aspects of the law is the proposed changes to the estate tax system. The American Housing and Economic Mobility Act of 2024 aims to return estate tax thresholds to the levels that existed at the end of the George W. Bush administration. Key proposals include:

• New inheritance tax rates: The proposed inheritance tax rates are structured progressively, imposing a 55% tax on inheritances valued up to $13 million, 60% on amounts over $13 million but not exceeding $93 million, and 65% on amounts over $93 million.
• Reduction of the exemption limit: The inheritance tax exemption limit is to be reduced to $3.5 million. This is the most recent level in 2009. The aim of this reduction is to increase the number of estates subject to inheritance tax and thus generate additional federal revenue.
• Surcharge on high-income estates and trusts: The bill imposes a new surcharge on high-income estates and trusts, consisting of a 5% tax on the portion of 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.
• Restrictions on the credit of foreign taxes: The bill proposes changes to limit the foreign tax credit for estates and trusts and align it with the highest applicable tax rate.
• Possibility to choose the corporate tax rate: An innovative feature allows individuals to opt to be taxed at the corporate tax rate, with corresponding adjustments to tax laws.
• Interest on tax deferrals: The bill addresses interest on deferred tax liabilities for estates and trusts and proposes changes to applicable tax rates to reflect current economic conditions.

Possible impact on estates in the event of adoption

If enacted, the American Housing and Economic Mobility Act of 2024 would have a profound impact on estate planning and wealth transfer strategies. Lowering the estate tax exemption to $3.5 million would significantly increase the number of estates subject to federal estate tax. This could result in a significant increase in estate tax liabilities, particularly for high-net-worth individuals, necessitating more sophisticated estate planning techniques to mitigate tax burdens. In addition, the progressive tax rates and surcharges on estates and trusts of high-income individuals will likely encourage charitable giving and other tax-efficient strategies to minimize taxable estates.

It is expected that there will be intensive planning to fix the current allowance before the end of 2024. However, the experience of 2011 suggests that there will also be a desire to reverse all planning if it turns out that the reforms are not adopted as proposed.

Historical context of the proposal

The proposal to return the estate tax thresholds to pre-2010 levels and impose progressive tax rates is not without precedent. The estate tax has been a contentious issue in U.S. tax policy for decades, with significant changes under 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 in 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 taxable estates. The current proposal aims to roll back those changes in order to raise federal revenue and address wealth inequality, reflecting a broader shift toward more progressive tax policy.

Diploma

The American Housing and Economic Mobility Act of 2024 represents a concerted effort to address the housing crisis and address economic inequalities through a combination of housing initiatives and tax reforms. In particular, the proposed estate tax changes would have far-reaching implications for estate planning and wealth management in the United States. With recent support from the Harris campaign, the bill has gained new momentum, bringing the prospect of comprehensive 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 bill could reshape the landscape of housing and tax policy in the country, with lasting impacts for future generations.