It's very easy to get caught up in endless complexities trying to parse the long-awaited tax proposals — I wouldn't call them "tax reform" — that President Trump unveiled on Wednesday.
But I don't want to burden you with yet another article that tries to evaluate the total impact of the eight pages of proposals, which feel to me as if they were written in a bar one evening over a batch of beers for a Tax 101 class rather than by serious people who spent weeks working with tax issues.
Instead, I'll give you one key specific to look for when — or if — some sort of detailed plan emerges from some part of Congress one of these days.
I'm talking about the proposed repeal of the estate tax, which Trump and many Republicans have taken to calling the "death tax" even though it's paid by only about 1 in every 500 estates. As opposed to the "millions of small businesses" that Trump claimed in his Wednesday speech would be helped by eliminating the tax.
As things stand now, estates of more than about $5.5 million — about $11 million for married couples — pay taxes of up to 40 percent on assets above those thresholds. I think the rate is excessive, and I don't know how many people leap through endless hoops to minimize or eliminate estate taxes — but that's a topic for a different day.
What I do know, however, is that death conveys a big advantage to the estates of the 99.8 percent of us (including me) who haven't accumulated enough assets to be subject to the tax — an advantage that could shrink or disappear to help Trump and Congress accommodate the 0.2 percent.
The advantage: When we die, the "tax basis" — value for tax purposes — of assets we leave behind is marked up, tax-free, to their value on the day we died. So if you started your married life 40 or 50 years ago by buying a $27,000 house, traded up a few times and are leaving behind a house worth about $500,000, your inheritors can sell the house without having to pay capital gains tax or having to figure out what your tax basis in the house was.
This "tax-free step-up" also helps your heirs should you happen to leave behind, in a taxable account, stock that you bought 25 years ago and whose quarterly dividends you've been reinvesting for decades. Thanks to the tax-free step-up, your heirs don't have to try to figure out how much you paid for each part of the holding.
So, you see, this provision of the tax code provides substantial breaks for the 99.8 percent. And these breaks might well be limited or even eliminated if the estate tax is repealed, to help cover the cost of eliminating the tax for the 5,000 to 6,000 estates a year that are subject to it.
Why do I say that? Because there's a precedent for it. As I wrote in January, when I anticipated that eliminating the estate tax would be a key item on the Trump-Republican agenda, during the one year in which the estate tax disappeared — 2010 — parts of the tax-free-step-up-at-death provision were severely cut back.
If the estate tax is repealed, those who were subject to it and their heirs could defer capital gains taxes forever.
I asked the White House media folks what would happen to tax-free step-up if Trump's proposal is adopted. I got a quick, courteous but not terribly helpful response: "We repeal death and GST [generation skipping transfer] taxes. Any other changes would be determined by committees."
We don't know much about Trump's tax situation, something any number of us "enemy of the people" (as Trump calls us) journalistic types have pointed out repeatedly. That makes it impossible to calculate how much Trump would personally benefit from the proposals he's peddling, something that I think is important for us to know.
But even though details are lacking, there's one thing we can be sure of. It's this. Trump and his family — plus the families of the centimillionaires and billionaires in his Cabinet and among his advisers and financial backers — would benefit enormously from the end of the estate tax. Regardless of the harm that repeal would certainly do to public finance and might well do to the 99.8 percent of estates that aren't subject to the tax.
That, my friends, is the bottom line.