The Death Tax That Wouldn't Die

There doesn't seem to be any end to the fight over the federal estate tax, sometimes referred to as the "death tax." Now legislation proposed in Congress is resurrecting calls to dismiss this tax that has long plagued wealthy individuals.

The latest version of "Death Tax Repeal Act" was introduced by Representative Kevin Brady (R-TX) in the House (H.R. 2429) and by Senator John Thune (R-SD) in the Senate (S. 1183) on June 19. It seems that there's more momentum behind the push to repeal the tax than there's been for a couple of years.

A potential repeal didn't appear likely after the American Taxpayer Relief Act of 2012 (ATRA)—the legislation approved by Congress as the country teetered on the edge of a "fiscal cliff"—concluded a decade-long series of ups and downs. ATRA put an end to stop-gap measures by permanently approving certain estate tax law provisions. Significantly, this federal law:

  • Established a top estate tax rate of 40 percent, up slightly from 35 percent in 2012, but down from the high-water mark of 55 percent.
  • Retained a unified estate and gift tax exemption that can effectively shelter up to $5 million of assets in a decedent's name (indexed to $5.34 million in 2014).
  • Extended portability of the estate exemption between spouses, so the estate of a surviving spouse could use any unused portion of a deceased spouse's exemption.
  • Coordinated various other estate tax changes, including provisions affecting state death and inheritance taxes and the federal generation-skipping tax.

But there's really no such thing as a "permanent" change to the tax code. Amidst reports that the Obama administration could seek to tighten the rules, Forbes magazine revisited the issue with Jim Martin, a well-known advocate of estate tax repeal, who now leads the 60 Plus Association, a conservative organization for senior citizens. Forbes says that Martin is positioning himself to spearhead the charge for 2017 while banking on a Republican return to the White House in 2016.

The tactics aren't subtle. Forbes cited one recent ad by Martin's group calling the repeal "shovel ready" and he has famously aligned fellow advocates such as Senate Minority leader Mitch McConnell (R-KY) and House Speaker John Boehner (R-OH) with Ronald Reagan while linking detractors—including President Obama and Warren Buffett—to Karl Marx.

In yet another ad, which shows zombies in the background, Martin indicates that the tax was enacted three times to pay for wars and then quickly repealed, only to be reinstated again in 1916 to help fund World War I operations. The ad shrieks, "That conflict ended almost 100 years ago. Now is the time to drive a stake through the heart of the DEATH TAX for the fourth and final time!"

Vitriolic comments aside, the long-standing argument is that assets bequeathed to an estate should not be subject to tax because they were already eroded by income tax during the decedent's lifetime. In addition, repeal advocates point out that federal estate taxes comprise a mere fraction of the revenue collected by the IRS. We'll keep a watch on the proceedings as they wend their way through Congress.

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