Estate Tax In the News

Forbes is reporting on a recent vote in the House of Representatives, which passed 240-179, to end and repeal estate taxes in 2017.

The bill also allows a continuation of the stepped-up basis which would bypass any capital gains taxes for heirs.   With the current exemption of $5.43 million per individual and $10.86 million for a couple only 2 out of 1,000 are currently paying estate tax.

According to the Forbes article there are not enough votes in the Senate to pass, and also President Obama would likely veto the legislation if it made its way to his desk.

Even with the large exemption, I have not seen a decline in my estate appraisals, and probably have seen more growth.  Items still need to be valued, and for those inheriting, the new basis needs to be documented in the event the heirs eventually decide to sell.

The article also points out estate tax may become a hot-button issue as the presidential election starts to heat up.

Forbes reports

The House of Representatives voted to kill the federal estate tax today 240-179, with 7 Democrats joining. That doesn’t mean that the estate tax is going away anytime soon, but anti-death tax advocates say it sets the stage for possible repeal in 2017. Significantly, the bill keeps in place a provision called “stepped up basis” that allows capital gains to escape taxation if passed to heirs.

For now, there aren’t enough votes in the Senate, and President Barack Obama would veto estate tax repeal anyway.

“Representatives are interested in showing that this is a priority and continuing the drumbeat,” says Palmer Schoening, head of the Family Business Coalition which lobbied on behalf of 82 business groups in favor of the repeal bill, H.R. 1105, introduced by Kevin Brady (R-TX). Sen. John Thune (R-SD) sponsored a companion bill, S. 860.

Only 2 out of every 1,000 people who die are subject to the federal estate tax, according to Tax Policy Center estimates. That’s because there’s a huge exclusion amount–$5.43 million per individual or $10.86 million per couple—before the tax kicks in (the top rate is 40%).

Arguments for repeal: it would spur the economy and lift burdens on owners of small businesses and farms. Karen Madonia, chief financial officer of Illco, a Chicago-area HVAC supplies distributor, testified on Capitol Hill last month how an estate tax on her father’s death would mean selling parts of the company (shutting down branches, laying off workers or liquidating inventory) to pay it.

Arguments in favor of the tax: it helps reduce concentrations of wealth and produces additional revenue. Repealing the tax would cost the Treasury $270 billion over 10 years. On average, 55% of the value of estates worth more than $100 million is made up of unrealized capital gains that have never faced income or capital gains tax, according to Americans For Tax Fairness’ review of Federal Reserve Data.

The White House frames the issue a different way on its blog: Taxpayers have a choice of “giveaways to the wealthy few” (“5,400 of America’s wealthiest households would get an average tax cut of more than $3 million”) versus “tax cuts for the middle class” (44 million middle-class families would get an average tax cut of nearly $600).

President Barack Obama’s latest budget calls for lowering the estate tax exclusion amount back to $3.5 million per person and raising the top rate to 45%. And he wants to eliminate the “stepped up basis” provision that allows capital gains to escape taxation if passed to heirs. By contrast, the House bill called for both repealing the estate tax—AND—keeping “stepped up basis.” That means huge appreciation would never be hit with tax. The last year of the Bush tax cuts, in 2010, repeal was less generous. Then, taxpayers could choose either to pay no estate tax but lose step up on appreciated assets OR keep step up and pay estate tax.

The House vote will likely make the death tax an election issue, predicts Schoening. The last House vote on estate tax repeal was in 2005, when it passed 272-162, with 42 Democrats joining.

Seven Democrats voted for the bill this time, in favor of repeal: Rep. Brad Ashford (D-NE), Rep. Rob Bishop (D-GA), Rep. Jim Costa (CA CA +0.16%), Rep. Henry Cuellar (TX), Rep. Collin Peterson (MN), Rep. Dutch Ruppersberger (MD), Rep. Kyrsten Sinema (R-AZ).

Three Republicans voted against repeal: Rep. David Jolly (R-FL), Rep. Walter Jones (R-NC), Rep. Scott Rigell (R-VA).

Source: Forbes