SENATE REFUSES TO KILL DEATH TAX
Last week a bill introduced to the United States Senate that would have made the repeal of the federal estate tax permanent failed to muster the requisite sixty votes.
As you may be aware, last June President Bush signed into law an Act that would repeal the federal estate tax, sort of. The repeal of the estate tax is not permanent. In fact, the estate tax is only repealed for one year, 2010. In 2011, the estate tax will be back.
From now until 2010, the credit that every American citizen receives against the federal estate tax will increase. Currently, the credit is equivalent to $1,000,000. So, if you were to die today with an estate at or below $1,000,000, you would pay no federal estate tax.
Very comforting, huh? I don’t know if the credit equivalent makes dying any easier for the taxpayer, but I guess, for those who were fortunate enough to have accumulated substantial wealth during life, the credit makes life more pleasurable for their heirs.
And the credit under the new law gets better. Beginning in 2004, the credit rises to $1,500,000 and from there, rises to $3,500,000 by the year 2010 – before it is repealed, at least for that one year.
People applauded when President Bush signed the new law into effect last year. Most were happy to see the death of the federal Death Tax. This, despite the fact that less than 2% of all estates paid federal estate before President Bush signed the new law, which repealed the tax.
But I’ve told you this before. What’s new is the Senate’s recent action in failing to pass a bill that would make the new Act permanent. Because the new Act has an impact on the federal budget, the law could only last for ten years, unless sixty senators agreed to make the Act permanent.
In 2011, the federal estate tax, the dreaded Death Tax, will rise from the dead. Worse yet, in 2011, each of us will only receive a credit of $1,000,000 against the tax – not the $3,500,000 credit that will exist in 2009, the year immediately preceding the year in which the tax is repealed.
I’ve mentioned before that the Act probably will not be made permanent. That events that have occurred since June 2001 will make a permanent repeal of the federal estate tax impossible. A growing federal deficit (if you remember, there actually use to be a federal surplus), the attacks of September 11th, and a Democratic controlled Senate – all of these events, and more, militate against the permanent repeal of the dreaded Death Tax.
And things aren’t looking any rosier for the permanent repeal.
So, in the end, we’re probably going to have a federal estate tax. We might get a higher credit against the tax – perhaps $2,000,000 or $2,500,000 – but I think the Death Tax will linger on, notwithstanding our attempts to kill it.
That’s probably not such a bad thing. Since less than 2% of American benefit from the repeal of the estate tax, and 98% of us benefit from it, the tax isn’t such a bad thing. Allowing multi-millionaires and billionaires to pass their massive fortunes on to their family without tax may seem like the American way (Don’t we all have the dream of being rich some day?), the fact of the matter is, accumulation of wealth on that scale would polarize our society, creating a wealth elite class and hard-working ordinary class.
Since I’m in the latter class, along with most of you, I kind of like the federal estate tax. I dream that someday I’ll be a billionaire too, but I probably won’t.