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RETIRE THE ESTATE TAX -- NOW



Published: Wed, May 1, 2002 @ 12:00 a.m.



Chicago Tribune: The House has voted to make permanent the $1.35 trillion, 10-year tax cut signed by President Bush in 2001. The vote was little more than a political statement by Republicans. They know the Democratic-controlled Senate doesn't plan to follow suit.

And that's probably just as well. Congress has plenty of time to gauge the financial impact of the slew of tax cuts before they expire.

On one matter, though, Congress should act now. The Senate will vote in the next few months on whether to permanently repeal the estate tax. That won't be a meaningless vote.

The estate tax was part of the 2001 tax-cut package, but it is not dead. Rather, it has morphed into a confusing, moving target that is guaranteed to trap some taxpayers.

This year, the tax rate drops to 50 percent on estates valued at more than $1 million. That rate slowly declines, and the amount that is exempt from the estate tax slowly rises until 2009, when $3.5 million will be excluded and the rest subject to a 45 percent tax.

The next year the rate will drop to zero. Repeal! Not so fast.

The year after that, it springs back like a rubber band to 55 percent of estates valued above $675,000 -- the same as it was in 2001.

Good old Uncle Harry

Yes, New Year's Eve in 2010 could be problematic for some loved ones and their families. If ailing Uncle Harry dies before midnight, his estate will not be subject to any inheritance tax, whether it's worth $1 million or $100 million.

But if he expires on the way home from Times Square on Jan. 1, 2011, Uncle Harry's estate will run into Uncle Sam's buzz saw. The government will take more than half of everything above the value of $675,000.

Now, talking about making tax cuts "permanent" is always a bit of a misnomer. Nothing is permanent in Washington. Taxes will go up or down in the future depending on the needs of the nation. And it is silly to pretend in 2002 that anyone can forecast precisely what those needs will be in 2011. Will the economy be booming? Will we be at war? Who knows?

But in this case, a primary goal of eliminating the estate tax was to allow taxpayers to provide for their heirs with some certainty about the years ahead. The temporary repeal has succeeded only in increasing the uncertainty for Americans trying to plan for the future.

Because of the estate tax avoidance industry, the tax is hardly a bonanza for the government's coffers. The tax raised just $28 billion last year -- just 1.5 percent of total tax revenues.

It's time to put it to rest.




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