DYING FOR DOLLARS
June 5, 2006
The House has already passed a permanent repeal of the estate tax and the Senate takes up the debate this week. Under current law, the so-called death tax is scheduled to go away in 2010 for one year only, then return in 2011.
The Joint Committee on Taxation (JCT) has issued some contradictory numbers, according to the Wall Street Journal. First, according to the JCT:
- From 2011, after the estate tax is restored, through 2015, it is expected to collect $236 billion.
- The JCT claims permanent repeal would cost about $600 billion over 10 years.
However, the JCT's calculations aren't anywhere close to reality. And the JCT's own numbers prove it, says the WSJ.
The current death tax repeal bill contains a compromise that eliminates what is called the "step-up-basis at death on capital gains." Under current law, the value of inherited assets is "stepped up" to the market price at the time of death. This means that no capital gains tax is applied to the increase in its value over the original owner's lifetime. The change would require that the current 15 percent capital gains tax be paid on the full increase in value from the time of purchase. (By comparison, death tax rates are as high as 50 percent.)
The government would get a share of the gain of heretofore sheltered assets.
- JCT has calculated that changing this capital gains treatment of inherited assets would raise $50 billion to $60 billion a year -- more than the death tax actually raises each year.
- The capital gains change would bring in $293 billion over five years.
Inexplicably, says WSJ, Joint Tax estimates that the combination of these tax changes would do the opposite and cost the government about $45 billion more than the tax is expected to raise.
Source: Editorial, "Dying for Dollars," Wall Street Journal, June 5, 2006.
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