Presidents, Pandemics and Planning: A look to 2021 from the Lessons of 2020-Elections Have (Possible) Consequences

The election of 2020, both at the federal and New York level, provided a glimpse into where our country and state will be heading as we enter the third decade of this century.  At both levels, the most immediate and pressing concerns are the containment of the COVID-19 pandemic and repairing the economic damage that came with it.  This will require additional spending and adjustments to the respective tax systems to make up for the substantial shortfalls in revenue that have or will occur over the next few years.

The structure of the Federal and New York governments have both changed and additional changes may come depending on the outcome of the two runoff Senate elections in Georgia in January.  Pending those results, it is impossible to be certain of the possibilities, but with the positions from those whose elections are already certain, we can speculate as to where things will be heading.

Federal

At the end of 2017, with control of the Presidency and both houses of Congress, soon-to-be-ex-President Trump signed into law the Tax Cuts and Jobs Act.  Significant cuts were made to the income tax, capital gains tax and corporate tax rates.  Most significantly for estate planners, the estate and gift tax exemption were more than doubled from the previous base exemption of $5 million to $11 million per person and $22 million per married couple (the exemption has since increased annually by a cost of living adjustment increase).  This drastically shrunk an already small number of estates subject to federal estate tax.

President-elect Joe Biden has proposed substantial rollbacks of many of Trump’s tax policies including reducing the estate and gift tax exemption to the 2009 amount of $3.5 million.  This would be even lower than the amount than President Obama agreed to in 2012 as part of the Fiscal Cliff deal.  Both income tax and capital gains tax rates would also be increased for individuals who make over $400,000 a year.

Trump’s tax changes were enacted using Budget reconciliation, a process which allows for economic related laws to pass with a mere majority and not the filibuster-proof threshold of 60 votes.  Given the current makeup of the US Senate, it is certain that if President-elect Biden chooses to tackle tax policy before the mid-term elections in 2022, he will have to use this process as well.  This would also require Democrats to win both seats in the Georgia runoffs and garner support from all Democratic (and Independent) Senators to allow Vice-President-elect Kamala Harris to break the tie. 

If Democrats cannot successfully establish an even split in the Senate, Biden may choose to either forego tax changes or focus solely on economic recovery policies.  Alternatively, he can chart a less progressive path and attempt to garner support from the small pool of moderate Republican Senators.  After 2022, tax policy will become more important as many of the provisions of Trump’s tax law expire in 2025.

New York

Presidential and federal elections often obscure the important of state-wide elections, but the 2020 New York election was fairly notable due to its results.  Beginning in 2021, the Democratic Party will have a super-majority in both the Assembly and State Senate.  This will the legislature to override any vetoes by Governor Cuomo on any legislation he may differ from them on.  Tax policy is an area where it is very conceivable that a conflict may emerge

Under Governor Cuomo’s tenure, the state estate tax exemption has risen significantly from $1 million in 2014 to $5.93 million in 2021.  This has exempted many more estates from state estate tax while also increasing the tax burden on those estates that exceed 105% of the applicable exemption.  While it is likely that both the legislature and Cuomo will seek to continue to place this burden on the very wealthy, it is quite possible that the exemption will be reduced to cover the state’s budget shortfalls.  New Yorkers would likely be much more tolerable of an estate tax increase than an increase to income or property taxes especially in light of the federal income tax treatment of the SALT deduction already increasing many New Yorkers taxes.

Budget shortfalls and additional spending are almost inevitable given the current economic problems at both the federal and state levels.  One way or another, the money for this will have to be raised.  Increased taxes are coming.  By whom and from whom remains to be seen.

For more information, please contact me at info@levyestatelaw.com

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