The Mighty and Dreadfull Death Tax Nears Expiration

By December 14, 2009Taxation

The House has passed H.R. 4154, a permanent extension of the estate tax with an exorbitant top rate of 45 percent and a $3.5 million exemption, but the Senate is so bogged down with health care it may not get to the legislation before leaving for the holiday recess. The upshot would a one-year expiration of the death tax — a tax rate of ZILCH — for one year effective Jan. 1, which would be a hell of thing.

The death tax discourages investment by family-owned businesses and diverts useful resources into expensive estate planning, and its permanent elimination is a worthy goal. But a one-year expiration would create all sorts of perverse, even macabre incentives. With no action by Congress, the death tax would kick back in at the start of 2011 for estates valued above $1 million, with a top rate of 55 percent.

To be bald about it, the one-year absence of the estate tax creates an incentive to die. Those with property who want to leave it to their heirs? Better to shuffle off in 2010.

Some in the Senate don’t think it’s a problem. You can simply meet in January, pass something like the House bill and make it retroactive. Well…

The schedule has the Senate reconvening for the second session of the 111th Congress with a pro forma session on Jan. 5 and for business on Jan. 19. There are a lot of days in there for mortality to strike, and imagine the legal complications of IRS trying to collect on an estate from someone who died before Congressional enactment of a retroactive tax. Imagine the person circling January 4 on the calendar.

The Washington Business Journal reports on the state of play today, “Estate tax on brink of problematic repeal,” with a contribution from NAM Board Member Drew Greenblatt of Marlin Steel Wire Products.

Democrats are now looking at the must-pass Department of Defense appropriations bill to tack on an extension of the death tax. The bill starts in the House this week; the House could pass it and leave town, giving the Senate no opportunity to amend it.

Earlier posts here. The NAM opposed House passage of H.R. 4154, objecting to the high tax rate. See “Key Vote” letter here. We have previously expressed grudging acceptance of a permanent tax rate of 35 percent with a $5 million exemption.

Leave a Reply