WASHINGTON, D.C. – April 22, 2015 – (RealEstateRama) — On Thursday, April 16, the House voted 240-179 to repeal the federal death tax. In response to Congress, the President has threated to veto the repeal, leading most experts to predict a continuation of the long-standing tax. The death tax will likely stay in place despite its detrimental effect on family businesses and strong opposition from the American public, reports Tax Trends Weekly.
A repeal bill was introduced to Congress last week by Rep. Kevin Brady, R-Texas and was co-sponsored by Rep. Bill Flores, R-Texas. Flores, the chairman of the Republican Study Committee, has argued that “repealing the death tax restores fairness for American families, and is a step toward a 21st century, pro-growth tax code.”
The estate tax has a long and complicated history in America. Various versions of the tax have been introduced, and summarily repealed since 1797. The death tax has historically been used to fund wars, with the current version being introduced nearly a century ago to help fund World War I. “The U.S. death tax has been lowered, raised, repealed, reinstated, relieved, expired, and brought back to life time and time again just in the last five years,” says Joe Garza, Senior Partner at Dallas-based tax and estate firm, Garza & Harris. “A little historical analysis shows that this method of taxation was never meant to be a permanent revenue stream for the US Government.”
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Supporters of the repeal bill explain that the death tax discourages innovation by penalizing family farms and businesses. But Democrats counter that this tax only applies to a small percentage of Americans and that repealing the death tax would cost somewhere around $270 billion over the next ten years. Supporters of the death tax have argued that most family farms and businesses are already exempt from the death tax, as their taxable value usually falls under $5.43 million.
Regardless of any arguments in favor the tax, most Americans oppose it. Polls over the past decade have shown a 60% to 70% opposition to the tax. Even some Democratic leaders have taken issue with the death tax, including Rep. Sanford Bishop, D-Ga. who has pointed out that it harms businesses owned by minorities and women.
Perhaps the most compelling argument against the death tax is that it is actually detrimental the U.S. economy. The Republican staff of the JEC estimate that it costs the economy over $1 trillion in capital accumulation. That equals about 3.2% of overall capital stock. In accord with this estimate, a study by the Tax Foundation’s predicts a 2.2% boost to the U.S. economy and the creation of 139,000 jobs as a result of repealing the death tax.
Despite wide opposition to the death tax, the Obama administration intends not only to keep the tax in place, but to substantially increase it. Obama’s proposed budget includes a plan to add a capital gains tax to inheritances and to reduce tax exempt property to the first $100,000 of a single person’s inheritance. If the President’s proposal is approved, the U.S. would have the highest death tax in the world. Even if Obama’s proposal fails, the U.S. will likely continue to impose a steep death tax. Joe Garza explains, “As long as Congress and the White House fight for radically opposing views, Americans will be subject to the outdated and burdensome death tax that is currently in place.”
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