Putting the brake on the estate-tax-repeal train
Chuck Sheketoff
With Congress occupied in the grinding process of health reform, the estate-tax-repeal train has been getting ready to leave the station. Absent congressional action, the estate tax will cease to exist for one year in 2010.
The one-year repeal of the estate tax, a key barrier against the rise of an American aristocracy, is the legacy of the Bush Administration. It steadily whacked the estate tax to a nub starting in 2001. Next year, the estate tax is slated to disappear entirely (which is why 2010 has been dubbed “Bush’s year to throw mama from the train”). It would then revert to its pre-Bush level in 2011 — $1 million exemption and a top rate of 55% — if Congress does nothing.
Since 2001, some in Congress have admirably wanted to restore the federal estate tax to a semblance of its former self, but they now find themselves in a pickle. With less than 30 days to go before the train leaves the station, the bill on the table — “the Pomeroy bill” — would make permanent the 2009 estate tax level: $7 million exemption per couple and a 45 percent tax rate on assets above that amount. Because of the exemption level and other tax breaks built into estate tax law, taxable estates owe less than 20 percent of their value in tax, on average. Moreover, much of the value of large estates consists of unrealized capital gains that have never been taxed to begin with. The assets passed on to heirs get a “stepped up” basis for determining the gain to the heir when later sold.
The 2009 level represents a severely weakened estate tax from historical levels. It’s a tax that affects only the very wealthiest of the wealthy. To give a sense of how few will be subject to it, last year only 0.6% of estates in Oregon (202 Oregon estates) paid the federal tax (PDF), at a time when the exemption was lower.
As Citizens for Tax Justice explained in their latest report (PDF):
Making permanent the 2009 rules would, in fact, constitute a major tax cut for multi-millionaire families. It would constitute a partial extension of the Bush cut in the estate tax — at a time when we face huge federal budget deficits.
It may be hard for those members of Congress who believe in and fight for tax fairness to vote in favor of the Pomeroy bill, but they really have little choice. The Pomeroy bill has the best chance of receiving a majority vote in the House. The Pomeroy bill would put the brake on the estate-tax-repeal and would quash efforts to permanently weaken the estate tax further.
Our members of Congress should take heart that there could be opportunities to strengthen the estate tax in 2010, even with passage of the Pomeroy bill.
Since all the other Bush tax cuts are set to expire at the end of next year, Congress may well revisit the estate tax later next year, especially because our nation’s dire needs and growing deficits that won’t be going away any time soon.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org
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Dec 2, '09
Holy heck, I agree with Chuck. We must not allow the handful of America's richest dynasties who lobbied hundreds of millions of dollars for this to succeed. I do support the current tax levels and don't see any reason to change them.
Wow, I support M66 and the Estate tax. Don't want to make it too easy for you to try and define me. I like keeping you on your toes. LOL
8:47 p.m.
Dec 2, '09
Chuck, thanks for revisiting this issue. I had completely forgotten that 2010 was the year to throw momma from the train.
Question: Why not simply extend the 2009 levels into 2010, and then allow the 2011 rates to happen as-is?
Dec 3, '09
What a boring thread. I agree with Kari AND mp.
Seriously, I'm having trouble parsing the title. English is my second language. I've heard of "putting the brakes on", but, is "putting the break on" also an idiom? Does it mean the same thing? Googling left me even more confused on this. Maybe it's just typical 9am, brain doesn't function.
Good piece. If history is a guide, it should get about 5 responses!
Dec 3, '09
For once, I'd like someone here on this blog to talk about something other than taxes and fees. Can anyone here offer some clear and sensible ideas for job creation?
Dec 3, '09
Question: Wouldn't it make more sense to hope nothing happens, and (after one year of no estate tax) be happy we return to a lower exemption and higher rate?
Seems to me, locking in the Pomeroy rate and exemption as permanent is a give-a-way to the rich on Bushian levels.
Dec 3, '09
I suppose a corporate banking oligarchy is better then an aristocracy. End the Fed.
G
Dec 3, '09
I am happy to report that the Pomeroy bill was approved in the House today, 225-220. Everyone in the Oregon delegation voted for the bill except for Greg Walden.
2:44 p.m.
Dec 3, '09
I sadly have to agree with Janet--the discussion over rates and exemption levels is fluid and somewhat arbitrary. But the principle of an estate tax is critical, and it can't be left to die. So it's good, or un-bad, that Pomeroy's passed. Trying to strengthen it would be much easier than trying to reinstate it.
Dec 3, '09
I know, I know, I am an old fart who probably has spelling issues, but come on "break" when you mean "brake"?
[Fixed. Thanks.]
Dec 4, '09
Senate working on a big tax break for those that inherit from the "modesty wealthy", or whatever you chose to call them.
Meaning heirs of those individuals with substantial assets, but less than 3.5 million or couples less than 7 million at time of death. Because the step up in tax basis is maintained under this law.
On a 7 million estate, studies show a large portion of that wealth was never taxed (appreciation of assets including real estate, stocks, etc. And under Pomeroy and current law, never will be). This is a tax free windfall for these heirs. It's not just people passing on what they accumulated, its tax avoidance for these modestly wealthy/well off heirs.
For instance, if someone had an estate of 7 million, with 40% of that in unrealized capital gain, their heirs would, in Oregon, avoid a tax liability of about $750,000. We're not talking "death taxes", we're talking capital gains taxes that should be paid on real gain.
A more fair approach could include:
No step up in basis for anything other than principle residence, (with some limitation like three times the average home value), personal belongings like jewelry (up to certain limit so people can't buy a 10 million dollar diamond to avoid tax). The tax basis in other assets would be inherited and no taxes due because no taxable event on inheritence.
Impose an estate tax starting at 10% on gross value of estate over some amount, in the range of 1-5 million/person perhaps. (That would be a husband and wife who worked hard and saved and accumulated up to 2-10 million. That shouldn't kill the American capitalist spirit too much now should it?). This tax could go up to something in the 20-25% range at higher levels of wealth. This could be paid over time when a family business/farm is involved(Which current law allows by the way)
This approach would hit more of the modestly wealthy people's heirs, but only on disposition of the inherited asset. And it closes the big tax avoidance loophole these heirs get now. Exempting "normal" accumulations of assets would reduce record keeping for the modestly wealthy. People who inherit family businesses wouldn't have to sell their family businesses and farms to pay estate taxes (not that they really do that anyway, but it does foreclose that argument.) And, the estate tax, albeit reduced, on those above the exemption recognizes the purpose of the estate tax in the first place.
The numbers and percentages could be tweaked of course.
Ta-da
Dec 4, '09
Why so snobbish regarding Neotin? Conspicuously thank someone that says the same thing halfway down the thread? A little less narcissistic indignation, if you please!
Dec 5, '09
What's wrong with people who want to be just a little like the Kennedys -- paying very little in taxes? I bet all those years Teddy hated the idea of, for example, four grown-up kids inheriting even a half-million apiece from an uncle, and while he received big tax-free checks from the family trust fund every year (as does Bobby, Jr. et al.) he voted to prevent anyone from getting even a tiny fraction of what he had. Heck, some "drek" might afford to move next door to him if they come into money!
Bob Tiernan Portland
Dec 7, '09
well..thanks for revising me i was totally forgot that our taxes are going to change this year.But i don't think its so big change in our Business taxes.Its small change everyone can afford this. no matters.Thank you.Have a nice day. watch tv shows online | tv online live
Dec 7, '09
Posted by: watch tv online free | Dec 7, 2009 11:44:57 AM
well..thanks for revising me i was totally forgot that our taxes are going to change this year.But i don't think its so big change in our Business taxes.Its small change everyone can afford this. no matters.Thank you.Have a nice day. watch tv shows online | tv online live
Kelly, David [email protected] 4040 Providence Lane Pasadena, CA 91104 United States +1.9897205155
This is how you deal with spam! Now watch (and this will be posted again). Kari's major concern- protecting the link spammer's email address!!!
Would you kindly explain just how that is not telling your readership to screw themselves?
Dec 18, '09
well it's at least good that they can tax at disposition of the asset by the heir, right?
ok now, i think they are going at it all wrong.
1) like Louisiana, make parents bequeath to their children, no skipping generations or forgetting them, leaving them out of the will. why? to keep the kids/ grandkids of the wealthy off the welfare rolls, and out of the homeless camps, where many in Oregon and every other state, languish right now.
2) make the estate tax be based on what the heirs each inherit, tax that per each individual heir, not the total of the estate before it is inherited.
The purpose of inheritance, is to ensure that the next generations survive well, but there is nothing to make sure that this is happening via inheritance at all.
<h2>Shame.</h2>