I just received an email from a client who is concerned about he heard that Kamala Harris proposed an amendment to Section 1014 of the tax code that adjusts tax basis in inherited assets. Read my summary of this proposal here. I can't even count how many times clients have come to me in a panic, convinced they had to stop everything because "the law was about to change." They've read an article, heard a rumor, or overheard someone at a dinner party, and suddenly, their entire estate plan is on hold. And yet, here we are—years later—and those same proposals that caused so much stress? Never happened.
Now, we have President Biden’s step-up in basis (STUB) proposal, which is sparking the same concerns. But before hitting pause on estate planning again, it’s worth looking at the history of these tax proposals. So many ambitious plans have been floated, only to fizzle out in Congress. This chapter dives into the long list of failed tax reforms and what we can learn from them—before jumping to any conclusions.
Remember This One?
READ MY LIPS
In one of the most famous moments in political history, then-presidential candidate George H.W. Bush made a bold promise at the 1988 Republican National Convention: "Read my lips: no new taxes." It was a clear, unequivocal statement—one that many believed would define his presidency. So, what did he mean by it, what actually happened, and how did it all go so wrong?
What He Said
Bush's pledge was simple: he vowed not to raise taxes under his administration, a promise aimed at appealing to fiscally conservative voters. At the time, it was a political masterstroke, helping to secure his victory over Democratic candidate Michael Dukakis. The country, still feeling the effects of the Reagan years, wanted to keep taxes low and the economy booming.
What He Meant
Bush wasn’t just saying there wouldn’t be "new" taxes; he meant no tax increases of any kind—new or old. He wanted to continue the Reagan-era policy of cutting taxes while controlling government spending. In essence, Bush aimed to keep the government's hands out of people’s wallets, trusting that a free-market approach would spur economic growth.
What Happened
Fast forward to 1990, and the reality of governing set in. Faced with a mounting federal deficit, Bush had little choice but to compromise with a Democratic-controlled Congress to pass a budget that included—yes—tax increases. His decision to break his famous promise was seen as a betrayal by many of his supporters, who had rallied behind his "no new taxes" mantra. Although the budget deal helped reduce the deficit, the political damage was done.
The Fallout
Bush's broken tax pledge became a lightning rod for criticism, especially from within his own party. Conservatives who had championed his anti-tax stance were furious, feeling betrayed by the very person they had helped elect. When Bush ran for re-election in 1992, Democratic challenger Bill Clinton capitalized on the broken promise, using it to paint Bush as untrustworthy. Many analysts believe this, along with a weakening economy, contributed significantly to Bush's defeat in the election.
The Lesson
Bush’s famous words have since become a cautionary tale for politicians: promises made on the campaign trail, especially those involving taxes, can have long-lasting consequences. The fallout from "Read my lips" serves as a reminder that political realities often force leaders into difficult compromises, sometimes at the expense of their most famous commitments.
Here are some notable examples of tax proposals by U.S. presidents that failed to gain traction or be implemented:
Jimmy Carter's Tax Rebate Plan (1977)
In early 1977, newly-elected President Jimmy Carter proposed a $50 tax rebate for most Americans as part of an economic stimulus package. However, the rebate plan faced opposition in Congress and was ultimately abandoned by Carter just a few months later. The failure of this high-profile tax proposal early in Carter's term was seen as a setback for his economic agenda.
Bill Clinton's BTU Tax (1993)
In 1993, President Bill Clinton proposed a broad-based energy tax based on the heat content (BTUs) of various fuels. However, the BTU tax faced strong opposition from industry groups and was ultimately abandoned in favor of a smaller gasoline tax increase.
George W. Bush's Social Security Privatization Plan (2005)
In his 2005 State of the Union address, President George W. Bush proposed partially privatizing Social Security by allowing workers to divert some payroll taxes into private investment accounts. However, the plan faced significant opposition and failed to gain traction in Congress.
Barack Obama's "Buffett Rule" (2011)
President Obama proposed the "Buffett Rule" in 2011, which would have imposed a minimum tax rate of 30% on individuals making more than $1 million per year. While popular with many Democrats, the proposal failed to advance in Congress.
Donald Trump's Border Adjustment Tax (2017)
Early in his term, President Trump and congressional Republicans floated the idea of a "border adjustment tax" that would have taxed imports while exempting exports. However, the proposal faced opposition from retailers and other import-dependent industries and was ultimately dropped from the 2017 tax reform package.These examples demonstrate how even presidents with strong electoral mandates can struggle to implement major changes to the tax code, often due to opposition from Congress, interest groups, or shifts in economic conditions. The complexity of the tax system and competing priorities frequently derail ambitious tax reform proposals.
Do Not Count on Congress to Make Up Their Minds—Even When They Finally Do
If there's one thing you should know about the U.S. estate tax, it's this: don’t count on it staying the same for long. Even when Congress does manage to pass a tax bill, history shows it’s bound to change, and often. The estate tax code is in a constant state of adjustment, and the step-up in basis (Section 1014 STUB) is right in the thick of it.
Let’s take a quick look at the rollercoaster ride the federal estate tax has taken since 1996:
- 1997: The Taxpayer Relief Act gradually increased the estate tax exemption from $600,000 to $1 million by 2006. Great for those family-owned businesses—but just wait.
- 2001: The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) shook things up again, raising the exemption even more, to $3.5 million by 2009, and cutting the top estate tax rate from 55% to 45%. By 2010, they even repealed the estate tax altogether for one year—only to sunset the law and reset everything in 2011. Talk about a wild ride!
- 2010: Then came the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act. Estate taxes returned with an exemption of $5 million, and for the first time, spouses could "port" their unused exemption to each other. But this was just a pit stop, not a final destination.
- 2012: With the American Taxpayer Relief Act, $5 million became the new permanent exemption (adjusted for inflation), but Congress bumped the top rate back up to 40%. Permanent? Well, as permanent as Congress can manage.
- 2017: Next came the Tax Cuts and Jobs Act, doubling the exemption to $11.18 million for 2018, with a sunset clause ready to bring it all back down to pre-2018 levels after 2025. So, don’t get too comfortable—more changes are already in the pipeline.
As of 2024, the estate tax exemption is $13.61 million per person, which has drastically reduced the number of estates subject to federal taxes. But if history tells us anything, it's that this figure could change again before we even finish reading the next tax proposal.
The Bottom Line
Tax bills, especially estate tax laws, are constantly rewritten, revised, and reinterpreted by Congress. Whether it’s raising exemptions, cutting rates, or adjusting who gets taxed, the estate tax code has never stayed still for long. The step-up in basis (STUB) is part of this shifting legal landscape, and even if Congress "finally" makes up their minds on it, that decision will probably change a few years down the road.
So, if you’re banking on certainty in the estate tax world, don’t hold your breath. Flexibility and staying informed are key. Just because something’s enacted today doesn’t mean it’s set in stone for tomorrow—especially when it comes to Congress and taxes.
