By ANN McFEATTERS
Block News Alliance
August 11, 2005
In an essay for The Wall Street Journal, Senate Republican leader Bill Frist of Tennessee, one of the wealthiest members of the Senate, insists the "death tax is the cruelest, most unfair tax our government imposes." He said that in the first week after Labor Day he will call for a Senate vote to repeal it. "There will be no more hiding on the issue of permanent death-tax repeal," he warned.
The House voted April 13 to permanently repeal the estate tax. So Frist's vow sets up another all-out fight in the Senate. Republicans want to act now on repeal, even if they're defeated in their attempt, so they can use it as an issue against Democrats in next year's congressional elections. For their part, many Democrats intend to filibuster and charge Republicans with kowtowing to the rich.
The 2001 tax cut orchestrated by Bush gradually phases out the estate tax until it is gone completely in 2010. But in 2011, it comes back with a vengeance unless Congress permanently repeals the tax or lifts the amount exempted or otherwise changes the law.
So, what's the deal? Would the nation be better off without the grim-sounding "death tax"?
Those who shout "yes!" argue that the tax is duplicative because in some cases federal income taxes already have been imposed on assets accumulated. However, at the time of death, capital gains tax usually has not been paid on the vast block of stocks or bonds or property that have risen substantially in value.
Supporters of repeal say estate taxes are unfair to farm families and small businesses. But the Tax Policy Center estimates that last year estate taxes were paid on only 440 farms and small businesses out of the thousands of farms and small businesses left to heirs, and that taxes paid averaged less than 20 percent of the value of the estate. Also, there are special rules for estates with farms and businesses that reduce taxes owed.
Those who shout "no!" to repeal say the number of families actually subject to the estate tax is minuscule. The Congressional Research Service notes IRS figures that show that of the 2.4 million people who die in this country each year, only 1.3 percent of their estates owe any estate tax.
The "no" side makes the point that billions of dollars lost to the government by repeal would either mean cuts in federal programs or higher taxes elsewhere. The Congressional Budget Office estimates lost revenue from repealing the estate tax would be $380 billion over 10 years.
In a little-noticed irony, millions of American who pay no estate tax now could be hit with heavy new capital gains taxes on inheritances, depending on what Congress does. And the complications of determining how much capital gains would be due on property held for years by someone now deceased would be mind-boggling. Nobody in his or her right mind would want to be executor of a will.
The astonishing thing is that this would be so arduous, even for tax lawyers, and taxes could be so much higher that there would be a huge uproar at the same time Bush is promising, as he did this past week, to "develop a simpler (tax) code that's a fairer code and one that encourages economic growth."
Without any doubt, the coming debate will be mean and confusing. The argument of the American Conservative Union, for repeal, is: "Everything you have worked hard for your entire life, everything you wanted to leave to your children and grandchildren to keep your legacy alive, will again be taxed. And this time the tax rate will be that of a loan shark." FactCheck.org, which calls itself a nonpartisan, nonprofit, consumer advocate for voters and takes no stand on repeal, says nothing in that statement is true.
Supporters of keeping the estate tax argue that the true beneficiaries of repeal would be America's wealthiest families, those with many millions of dollars and flanks of lawyers able to figure out how to set up new tax shelters such as family limited partnerships and avoid capital gains taxes. Calling repeal the "Paris Hilton Relief Act," they claim the estate tax is one of the fairest, most progressive taxes, and that repeal would lower contributions to charity by 6 percent. But that's a highly debatable claim.
There is little doubt that the inordinately complex estate tax, at the least, needs an overhaul with higher exemptions. A million dollars ain't what it used to be.
But the vitriolic, misleading, partisan debate in the Senate we're about to have to endure will not do anyone any good.
Pittsburgh Post-Gazette and The Toledo Blade.