December 7, 2009

The House passed a measure on Thursday that would extend the death tax indefinitely. Whether or not the Senate votes on the issue, and when, could mean very different things for this unpopular tax.

For now, the Senate is distracted by health care legislation, and it’s unlikely that they’ll find the time to vote on death tax legislation before the end of the year. That means the tax will expire in 2010 – completely. It will be reduced from it’s current rate of 55% to zero.

If the Senate continues to not vote on the issue, it will spring back up to 45%. In other words, it will eventually be reduced. But if you own a small business and are about to die, you should choose to die next year rather than the year after, because for one year, you don’t have to pay anything.

Ryan Ellis, the director of policy at Americans for Tax Reform says it is "looking grim." The Senate will probably take the measure up at some point. But Ellis thinks that if they take it up later rather than now, taxpayers will get a better deal. Ellis said, "There are some people that want to cut a deal now, but I don’t think we're going to get as good a deal now as we're going to get next year.”

With the current make-up of the Senate, Democrats would have to get 60 votes to pass a new version of the death tax, or eliminate the gap year, or do anything. Ellis thinks that will be near impossible – and might further Republicans’ goal of eliminating the tax entirely.

Under the House bill, estates smaller than $3.5 million would continue to be exempt from the tax. Married couples, with a little estate planning, could exempt a total of $7 million. That leaves less than 1 percent of all estates subject to the tax.

The bill passed by a 225-200 vote, with all Republicans opposed. Majority Democrats argued that a permanent tax rate makes it easier for families and small business owners to do estate planning.

The bill follows the federal budget proposed by President Barack Obama. But many Republicans called for permanent repeal of the estate tax, arguing it hurts families that pass down farms and small businesses to their children.

Brendan Buck, the Republican Study Committee spokesman, said that no matter what the Democrats are or are not able to do with the tax this year, the GOP was determined to eliminate it. He said the nation is currently scheduled to see the death tax go away next year, but "Democrats can't bare the thought of Americans seeing how much sense it makes to eliminate it. So we're going to end up with a permanent 45% tax."

Buck also said that if the GOP takes back control of Congress, one could bet that putting the estate tax to death once and for all will be on the priority list.”

The estate tax has been one of the star taxes Democrats have used over the last fifty years to generate income to pay for some governmental programs but has also been abused to increase the bureaucracy within the government.

The GOP has always called the estate tax by the term "death tax" noting that this was a way for the government to "get paid" for your death.  Meanwhile, the argument that most assets left within inheritances have already been taxed and should not be subject to a second tax. Democrats have countered that the recipients of estates haven't paid taxes and should contribute "their fair share."

I like what Republican Congressman Louie Gohmert of Texas said. He likened the estate tax to stealing from the dead, but I would go a step further and say it is taxing you to die.  In this life, the old adage of there being only two things in life that are certain, viz. death and taxes, will change under Democratic policies: Death, Taxes and Death Taxes.

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