Postponing the Estate Tax
January 2, 2015
The federal estate tax -- often called the death tax -- is a tax on the transfer of a person's assets at death. Property above a certain value is taxed -- in 2014, the government imposed a 40 percent tax on assets over $5.34 million.
The tax is a pain to pay and to collect, says Economics21's Diana Furchtgott-Roth, yet it collected just $14 billion in 2012 -- less than one half of 1 percent of IRS revenue that year. Furchtgott-Roth says that just 1 percent of the population ends up paying the tax because many people hire tax attorneys to protect their wealth.
But for those who cannot hire an attorney, they're forced to pay the tax, and the payment can end up breaking up family businesses by forcing them to liquidate assets to pay the government. As such, Rep. Andy Harris (R-Md.) has introduced H.R. 5872, the American Solution for Simplifying the Estate Tax Act -- the ASSET Act, for short. The bill would allow people to postpone paying the estate tax by paying an additional 1 percent income tax for seven years during their lifetime. After a person's death, his family could avoid paying the estate tax until they sell off the estate. The seven years of payments, says Furchtgott-Roth, would, on average, equal the postponed estate tax revenue, making the bill revenue-neutral.
Maryland auto dealership owner Jack Fitzgerald developed the idea behind the ASSET Act because he was concerned that his dealerships would have to be sold after his death to pay for the estate tax.
Source: Diana Furchtgott-Roth, "This Tax Change Could Keep Your Business Alive After Your Death," Economics21, December 19, 2014.
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