The American Housing and Economic Mobility Act of 2024, introduced by U.S. Rep. Emanuel Cleaver (D-Mo.), aims to address critical housing affordability and related economic challenges across the United States. This comprehensive legislation includes a wide range of measures designed to alleviate the housing crisis, reduce costs for renters, facilitate home purchases, and implement significant tax reforms. Key provisions include:
Encouraging the Construction of New Housing: The bill promotes the development of new housing units, particularly in areas facing severe shortages, to help meet the demand and stabilize housing prices.
Reducing Costs for Renters and Facilitating Home Purchases: The act introduces various measures to ease the financial burden on renters and provide greater opportunities for first-time homebuyers and veterans to enter the housing market.
Tax Reforms: Central to the bill are proposed tax changes, such as reverting estate tax thresholds to previous levels and closing existing tax loopholes. These reforms aim to increase federal revenue and ensure that the tax system is more equitable.
Incentives for Local Governments: The legislation encourages local governments to remove restrictive land use regulations that artificially inflate housing costs, thereby promoting more affordable housing development.
Limiting Private Equity Influence: The bill seeks to curb the growing influence of private equity firms in the housing market, which has contributed to increased housing prices and reduced availability.
Expanding Access to Credit: The act also expands access to credit through financial institutions, particularly for underserved communities, to support homeownership and economic mobility.
The American Housing and Economic Mobility Act of 2024 has garnered significant support from various nonprofit and advocacy groups, as well as key senators like Elizabeth Warren and Raphael Warnock. Its prospects for passage, however, depend on successful negotiations within the Democrat-majority Senate and the Republican-led House. The bill’s chances may be further bolstered if integrated into larger legislative initiatives, such as the American Jobs Plan in a future Harris administration.
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 return estate tax thresholds to the levels that existed in 2009 at the end of the George W. Bush administration. This includes:
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 is intended to increase the number of estates subject to the estate tax and to 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 that exceeds $200,000 and an additional 3% tax on the portion that exceeds $500,000. The MAGI, in this context, is defined as the adjusted gross income reduced by deductions for investment or business interest. Notably, charitable trusts are exempt from this surcharge.
Limitations on Foreign Tax Credit: The legislation also proposes amendments to limit the foreign tax credit for estates and trusts, which would be adjusted to reflect the highest applicable tax rate.
Option to Elect Corporate Tax Rates: Another innovative feature is the option for 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 profoundly affect estate planning and wealth transfer strategies. Reducing the estate tax exemption threshold to $3.5 million would dramatically increase the number of estates subject to federal estate taxes. Currently, according to the IRS figures, 0.2%, or 1 in 500, estates pay federal estate taxes. In 2009, 0.7%, or one in 140, estates paid taxes in 2009. The median value of a single-family home was $185,000 in 2009 and $420,000 in 2024, according to the National Association of Realtors. This could lead to a significant increase in estate tax liabilities for high-net-worth individuals and middle-class individuals, necessitating more sophisticated and costly estate planning techniques to mitigate tax exposure. This will also significantly impact the ownership of businesses, farms, and other illiquid assets since the tax must be paid within nine months of the date of death, forcing either borrowing or selling the illiquid asset.
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 gradually increased during the Bush administration, reaching $5 million per individual by 2010. However, subsequent adjustments under the Tax Cuts and Jobs Act of 2017 increased the exemption to $11.7 million per individual, substantially 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 bold attempt to tackle the housing crisis and address economic disparities through housing initiatives and tax reforms. The proposed estate tax changes would have far-reaching implications for estate planning and wealth management in the United States. 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.
