Estate Tax to Expire Temporarily as Extension Dropped
Bloomberg | By Ryan J. Donmoyer
The U.S. Senate abandoned efforts for now to extend the federal estate tax on multimillionaires, ensuring that a one-year expiration of the levy will begin on Dec. 31.
Senate Finance Committee Chairman Max Baucus said Congress will seek to restore the tax retroactively after the new year. The tax now yields about $25 billion in revenue annually.
“Clearly the correct public policy is to achieve continuity with respect to the estate tax,” Baucus, a Montana Democrat, said on the Senate floor today after Republicans rejected an effort to extend the current tax for three months. “We’ll clearly work to do this retroactively.”
The expiration of the tax hands a victory to Republicans who enacted legislation in 2001 to phase out what they call the “death tax.” The current tax is a maximum 45 percent on estates worth more than $7 million per couple. It is scheduled to expire for all of 2010 and be reinstated in 2011 at a rate of 55 percent for estates valued at more than $1 million.
Unless Congress adopts a new estate tax, tens of thousands of heirs next year will pay the lower capital gains rate if they liquidate inheritances.
“There’s nothing that outrages the American people more than the thought they will have to visit the IRS and the undertaker on the same day,” Senate Minority Leader Mitch McConnell, a Kentucky Republican, said in opposing an extension of the tax.
Kyl, Lincoln Plan
In opposing Baucus’s proposed extension, Arizona Republican Jon Kyl sought adoption of a plan he and Arkansas Democrat Blanche Lincoln pushed earlier this year. It would impose a top rate of 35 percent on couples’ estates worth over $10 million. Baucus objected, saying adoption of a permanent tax should receive more thorough consideration.
Efforts to enact a short-term extension of the tax collapsed yesterday. The current law was enacted as part of the tax cut then-President George W. Bush pushed through Congress in 2001.
“This bizarre estate-tax regime we will have in the coming weeks is the best indictment of the failure of our current federal tax system,” said Mark Bloomfield, president of the American Council for Capital Formation, a Washington group that supports Kyl’s and Lincoln’s plan.
“This is the first shot in the what will be the biggest tax reform debate we’ve had since 1986,” Bloomfield said.
Capital Gains Tax
In 2010 the capital gains tax on estates will apply to all but the first $1.3 million in inherited assets, including homes, stock certificates, stamp collections and livestock. Heirs who sell those assets would pay from 15 percent to 28 percent in taxes on any appreciation in value since the assets were originally acquired.
Under current law, the cost basis is reset to fair market value when bequeathed to heirs.
North Dakota Representative Earl Pomeroy has said about 61,000 estates would have to pay capital gains taxes in 2010, versus about 6,000 affected by the current estate tax. Pomeroy, a Democrat, sponsored legislation adopted by the House Dec. 3 to make the current 45 percent tax rate permanent.
Senate Majority Leader Harry Reid accused Republicans today of using small businesses as “props” to push for repeal of the estate tax on behalf of wealthy families. The capital gains tax will primarily affect families of modest wealth, he said.
“If you’re rich, celebrate; if you’re not, you should be really afraid,” Reid said.
One proponent of taxing large estates, Bill Gates Sr., father of Microsoft Corp. founder Bill Gates and co-chairman of the Bill and Melinda Gates Foundation, urged Congress to retain the tax.
“Society has a just claim on these fortunes,” Gates told reporters yesterday on a conference call organized by United for a Fair Economy, a Boston-based advocacy group in favor of keeping the estate tax.