The Estate Tax Repeal is a Lie.

APR 2006

President Bush and the Republicans loudly proclaimed victory in 2001, in passing the ‘permanent repeal of the estate tax.’  Much like any other legislative action, such shrill and conclusive proclamations warranted the writer to read deeply between the lines.

How does the repeal work?

The federal estate tax is scheduled to phase out over the next few years and disappear entirely in 2010 -- only to return in 2011 when the temporary repeal expires.  

The exemptions are broken down in a yearly, stepped fashion as follows:

 

Old Law

 

New Law

 

Year

Top Rate

Exemption

Top Rate

Exemption

2001

55%

$675,000

55%

$675,000

2002

55%

700,000

50%

1,000,000

2003

55%

700,000

49%

1,000,000

2004

55%

850,000

48%

1,500,000

2005

55%

950,000

47%

1,500,000

2006

55%

1,000,000

46%

2,000,000

2007

55%

1,000,000

45%

2,000,000

2008

55%

1,000,000

45%

2,000,000

2009

55%

1,000,000

45%

3,500,000

2010

55%

1,000,000

0%

No tax

2011

55%

1,000,000

55%

1,000,000

According to Forbes financial pundit, Stuart Weiss, if you're worried that the estate tax is never going away, or if you have a realistic fear that you might die before 2010, make sure you have enough cash in your estate to cover the tax. Otherwise, you should buy enough life insurance to cover the bill.

Double Jeopardy

Many states impose their own taxes and costs when residents die.  According to MSN Money analyst, Liz Pulliam Weston,

estates too small to trigger the federal tax can easily rack up thousands of dollars in state death taxes and probate costs. Far from being repealed along with the federal tax, this state burden is on track to rise over time.

•  Some states have their own estate- or inheritance-tax systems that are independent of the federal estate tax system.
•  Another group of states is imposing new estate taxes to make up for revenue from the waning federal tax.
•  Finally, some states have expensive and lengthy probate systems that apply to an increasing number of estates.

The federal estate tax is scheduled to phase out over the next few years and disappear entirely in 2010 -- only to return in 2011 when the temporary repeal expires. Opponents of the estate tax are struggling to make repeal permanent, but are facing stiff opposition in the Senate. (The House has already voted to permanently repeal it.)

But many states have estate or inheritance taxes that are independent of the federal system. Those states, according to John Logan, senior tax analyst with CCH Inc., include: Connecticut, Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, Ohio, Oklahoma, Pennsylvania and Tennessee. (Connecticut’s tax is scheduled to disappear after 2006.)

State estate taxes, like the federal version, are assessed on the estate as a whole. But states can have different rules about who pays.

The Estate Tax repeal was NEVER INTENDED to be permanent.

In order to meet budgetary restrictions, in an effort to compromise with opponents to the bill, and a strategy to stave off their far-right critics, Republicans architected the Act to repeal with a a so-called “sunset” provision (read: self-destruct device) that brings the current estate tax rules back in force in 2011. As such, this sunset provision will keep the debate on the estate tax brewing for the next decade.  Supporters of the repeal are struggling to make repeal permanent (HR 183), but are facing stiff opposition in the Senate.

With the current slate of issues that the nation faces – war on terror, the Iran situation, expenses stemming from the Katrina disaster, oil shortage, class-warfare, imminent collapse of the Social Security system and the US dollar, etc. don’t count on the Senate to put the Estate Tax issue at the top of their list.  Furthermore, the likelihood is very, very great that the Republicans will lose their majority in congress in the coming mid-term elections, effectively sounding the death-knell on the repeal once and for all.