Congress Should Be Ashamed Of This Dishonest ‘Repeal’
Of all the legislation National Underwriter has covered over the years, we would be hard pressed to identify anything that is as intellectually dishonest as the so-called “repeal” of the estate tax.
Whether one supports or opposes complete repeal of the estate tax–and NU has readers on both sides of the issue–it is hard to see how anyone can be satisfied with the outcome of this debate.
What started out as a legitimate examination of a controversial feature of U.S. tax policy devolved into a crass political game in which members of Congress who support repeal found a way to claim credit for something they did not actually achieve.
The word “repeal” is contained in the estate tax provision of the $1.35 trillion tax relief bill, but the word is stripped of all substance. What remains is an illusion that some are rightly calling a “suspension” of the tax. It will leave many taxpayers in the dark about how to prepare for the future. Even worse, it could lead some to think they needn’t do any estate planning at all.
Whatever the weaknesses of the previous estate tax system, it at least provided some degree of predictability about the tax liabilities involved in passing on assets to ones heirs. But now that Congress has “fixed” the estate tax, there is a huge black hole about what those liabilities will be 10 years down the road.
It may be instructive to review how this situation came about. Repeal of the estate tax became a major issue when Republicans gained control of Congress in 1994. But with Bill Clinton, an opponent of estate tax repeal, in the White House at that time, it remained an issue to score political points with certain constituencies.
The situation changed dramatically with the election of President George W. Bush. If passed by Congress, repeal would be signed into law. Now, repeal’s proponents had to confront the revenue loss, a daunting prospect.
As it turned out, the Congressional Joint Committee on Taxation reported that repeal would cost some $662 billion over 10 years, and continue to lose revenue long after that. Under certain procedural rules in the Senate, this revenue loss had to be offset with a revenue gain somewhere else. So in order to overcome this procedural roadblock, Congress came up which one of the most disingenuous solutions imaginable, a sunset provision.
Yes, estate tax rates will be gradually decreased until they are eliminated on Jan. 1, 2010. And yes, the estate tax credit will be gradually increased to $4 million in 2009. But the sunset provision means these changes will disappear on Jan. 1, 2011. Unless Congress passes another law, the exact estate tax system existing today, with a top rate of 55%, will come back into being on that date.
Who knows what Congress will do if and when it decides to reexamine the estate tax? How can anyone develop an effective estate plan amid so much uncertainty?
And that is the real tragedy of what Congress did. The very nature of estate planning is long-term. Decisions made today will not have an impact until 10, 15, 20 years or more into the future. Some measure of predictability is vital to long-term estate planning.
Moreover, members of Congress know this. These are not babes-in-the-woods. Most are very successful lawyers or business owners that have more than a rudimentary understanding of these concerns.
They simply betrayed their constituents by taking a dishonest, short-term view of a long-term issue.
Reproduced from National Underwriter Life & Health/Financial Services Edition, June 11, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.