Sunday, July 18, 2010

The Paramount Function of the U.S. Congress Seems to Be to Assist the Super-Rich to Get Richer the Expense of All the Rest of Us.

Heirs of the wealthy escape estate tax
Congress allowed the tax to lapse this year, leaving Uncle Sam without a piece of the inheritance for the first time in nearly 100 years.

By Lisa Mascaro, Tribune Washington Bureau

3:46 PM PDT, July 16, 2010

Reporting from Washington

If you're rich, 2010 is a great year to die.

This is the year that Congress has allowed the estate tax to lapse, allowing heirs to receive their windfalls without Uncle Sam taking a cut for the first time in nearly 100 years.

A reminder came this week with the passing of billionaire New York Yankees owner George Steinbrenner.

The baseball titan's heirs are likely to escape about $500 million in taxes, experts estimate, a fortune that has spotlighted Bush-era tax policies and the long debate over whether government spending or tax cutting is best for a shaky economy.

"It is embarrassing that we have a zero estate tax for the wealthiest Americans at this point," railed Sen. Byron L. Dorgan (D-N.D.) this week on the Senate floor.

"We have about 400 billionaires in America. I believe four of them have died in this year," Dorgan said. "How about an estate tax for estates worth billions of dollars?"

Other recently deceased billionaires, cited by Forbes magazine, include California real estate developer Walter H. Shorenstein, Houston oil man Dan L. Duncan and a member of the Minnesota family that founded agricultural giant Cargill Inc.

As congressional Democrats have struggled to extend unemployment benefits for jobless workers, the Republican-led push for inheritance tax breaks could draw a divide between the parties heading into the fall elections.

But the line is somewhat fuzzy — several Democrats have joined the Republicans in advocating breaks for heirs.

The 2010 lapse is a quirk of tax law and Washington politics. Under then- President George W. Bush, the estate tax rate was lowered in 2001 from 55% to 45% and the amount an individual can pass on without incurring the tax went from $1 million to $3.5 million.

When it was approved, the tax was scheduled to expire at the end of 2009, then resume in 2011 at its previous, higher rate. Lawmakers deadlocked and never agreed on new legislation.

So heirs have received a brief reprieve before the tax roars back to life next year, and at the higher levels that had been in place before the Bush tax cuts.

Republicans have long held that tax cutting is the best way to stimulate the economy. They believe the estate tax — which they derisively call the "death tax" — is particularly onerous on small and family-run businesses.

Senate Republicans have found common cause with key Democratic allies, including Sen. Blanche Lincoln of Arkansas, who is in a tough reelection battle.

Lincoln and Republican Sen. Jon Kyl of Arizona introduced a measure this week to make next year's estate tax lower than it was in 2009, when it brought in $14 billion. They would like to offset some of that lost revenue, but have yet to identify how to do it.

Their position stands in marked contrast to the fight over unemployment benefits. On that matter, most Republicans demand budget cuts to offset the full $33.9-billion cost of the jobless aid.

"There's a difference between spending and taxes," explained Sen. Lamar Alexander of Tennessee, the No. 3 Republican in the Senate.

"If you're going to spend more, you have to have a revenue source or you run up the debt," he said. Reducing taxes, on the other hand, "basically reduces the amount of revenue we have to spend, and we should reduce spending by an equal amount."

This conversation is a prelude to a broader debate unfolding about the future of other Bush tax breaks that expire by year's end. President Obama has promised to keep only those for families making less than $250,000 annually. Kyl and Lincoln, meanwhile, are pushing for a vote on their measure.

Some type of inheritance tax has been around since the early days of the nation. The tax has been used primarily to finance wars, including the Civil War, and a more permanent version of the tax was established in 1916, according to the congressional Joint Committee on Taxation.

The 2001 reduction in the estate tax came at a time that seems unrecognizable today, those early days of the Bush era when the war in Afghanistan was not yet fully underway, the Iraq war had not begun, and the government ran budget surpluses. But during a wobbly economic recovery, the attempt to soften a blow to the wealthy may prove a tough sell.

Among tax planners, the whole issue has lent itself to a measure of gallows humor. When asked how Congress will resolve the issue, Steve Hartnett, of the American Academy of Estate Planning Attorneys in San Diego, says he pulls a Magic 8-Ball from his desk, turns it over and declares: "Hmm. 'Uncertain.' "

Copyright © 2010, The Los Angeles Times

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