Members of Congress had years to close the loophole that would eliminate the estate tax completely in 2010. But they didn't. Now that high-profile billionaire George Steinbrenner has died, some of them are scrambling to find a way to tax his wealth - and the wealth of others who died since January 1 - one last time.
Steinbrenner died July 13, leaving a fortune that Forbes magazine estimated to be approximately $1.15 billion. Had Steinbrenner died before the end of 2009, his heirs would owe nearly half of that amount in estate tax.
The 2010 sunset
The law that placed a temporary sunset on the estate tax was the Economic Growth and Tax Relief Reconciliation Act of 2001(EGTRRA). Under its rules, the estate tax gradually decreased year after year until, in 2009, it reached 45 percent, with an exemption amount of $3.5 million. In 2010, the estate tax dropped to zero percent. This came about because the EGTRRA rules expired after 2009 and the rules before that law passed went back into effect.
Barring any action from Congress, this tax is scheduled to come back with a vengeance in 2011, this time at 55 percent, and with only a $1 million exemption. With such a long lead time, most onlookers expected that Congress would act before the end of 2009 to prevent the disappearance of the estate tax in 2010. There also was much talk of making permanent the 2009 levels (45 percent and $3.5 million exemption).
But Congress did neither. When January 1 came and went without new legislation, it was still widely assumed that the House and Senate would hustle to pass a bill that would resurrect the estate tax, retroactive to January 1. They didn't. More than half a year has gone by. Many people have died, leaving their heirs believing that there would be no federal estate tax.
Like it or not, it's the law
"If you're super wealthy, it's a good year to die", Jack Nuckolls, a BDO Seidman attorney and estate planner told MSNBC reporters. "It really is."
Sen. Jim Bunning (R-KY) opposes the estate tax on the grounds that it is punitive to the heirs. In a statement from 2006 he said",Small businesses and family farms should not be forced to close down in order to pay the U.S. government money because a loved one passes away."
After Steinbrenner's death, Bunning - who was an investment broker at the time he was elected to Congress - addressed the Senate Finance Committee about the harsh impact of the estate tax.
"Because [Steinbrenner] was smart enough to die in 2010, there is zero tax liability to the estate tax", he said. "If he had died in 2009 or 2011, there would have been a $500 million tax liability to his estate in 2009, and in 2011, under the proposal that we have, there would have been a $600 million [liability]. Should that kind of estate tax exist presently or should we propose it?"
To illustrate Bunning's point, take a look at what happened to another famous baseball family. P.K. Wrigley, owner of the Chicago Cubs, died in 1977. His family loved the Cubs, but had no choice but to sell the team. Why? A lack of planning left them with insufficient liquid assets to pay the estate taxes.
Is the Steinbrenner family off the hook?
Not if a group of senators has its way. The group, which includes Sen. Bernie Sanders (I-VT), is hoping to push through a bill to bring back the estate tax and make it retroactive to January 1, effectively taxing dead people. Sanders's communications director, Michael Briggs told reporters",[The legislation] would be retroactive and that is something the Supreme Court has held up in previous years."
The proposed bill is called the Responsible Estate Tax Act. If it passes, onlookers say, we can expect a protracted legal battle from the Steinbrenner family, and probably other families as well. Supporters of the Responsible Estate Tax Act say that in this declining economy, America can't afford to not bring back the estate tax. Estimates vary concerning how much estate tax revenue would be lost if the current law is allowed to stand.
Suppose the group of senators fails to pass the bill. Even without the retroactive estate tax, analysts estimate the family will owe New York approximately $175 million in state estate tax. Tax attorney Joy Elizabeth Hodge told reporters that, assuming the estate tax is not resurrected for 2010, the worst case scenario will yield a federal tax savings for the Steinbrenner's heirs of approximately $328 million. And that is only if they sell the inherited assets and those assets have zero basis (creating a capital gains tax bill of approximately $165 million).
Steinbrenner's estate includes the Yankees baseball team, and a 40 percent share of the YES Network, which is owned by the Yankees.
As for the future of the Yankees, fans do not need to worry. Unlike the Wrigley family, the Steinbrenners have been heavily engaged in estate planning for a long time. Their tax fate is iffy depending on what Congress does, but family members agree that the Yankees are not for sale.