NCPA - National Center for Policy Analysis


November 12, 2009

Lawmakers have known it was coming since a temporary scheme was enacted in 2001: without congressional action, the estate tax will be repealed for a year in 2010 and then reset at the highest rates in a decade.  But just months before the yearlong repeal is set to begin, lawmakers have yet to pass an estate law reform package.  Now, several lawmakers, as well as some estate tax experts and small business organizations, are ramping up their calls to kill the death tax completely, says the Wisconsin Law Journal.

Some are calling for complete repeal of the estate tax.  Others have suggested that Congress freeze estate tax provisions in their 2010 form.  One thing is clear: we will need to find a solution, says Rep. Nydia Velázquez (D-N.Y.), who chairs the House Committee on Small Business.

The estate tax quagmire stems from the Economic Growth and Tax Relief Reconciliation Act of 2001, says the Journal:

  • The Act established a gradual decrease in the overall highest estate tax rate from 55 to 45 percent between 2001 and 2009, while raising the exemption amount from $675,000 to $3.5 million during the same period.
  • Then in 2010, the tax is set to be repealed for one year before being reset to the pre-2001 levels of 55 percent and $1 million in 2011.
  • This temporary measure was enacted on the assumption that Congress would revisit the issue before 2009 in order to set rates at appropriate levels.
  • But the absence of congressional action has left small businesses and estate planning attorneys in a state of uncertainty.
  • Now, the economic crisis has spurred a growing movement to axe the tax altogether.

"Middle-class Americans, especially small-business owners, are often stuck with a burdensome estate," says Terry Neese, a Distinguished Fellow with the National Center for Policy Analysis.  "Small-business owners generally have large investments in infrastructure.  Many don't have large capital assets that can be used to pay the tax, so many heirs have to liquidate to pay the estate tax."

Neese said the revenue the government receives from estate taxes -- amounting to less than 3 percent of total federal tax revenue -- is not worth the negative impact on job creation.

"Small-business owners are the job-creators of this country, and will lead us out of the recession as they did in 2001," explains Neese.  "They don't need any more taxes, not now, and not when they die."

Source: Kimberly Atkins, "Congress Grapples with Estate Tax Reform," Wisconsin Law Journal, November 13, 2009.

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