By Curtis Dubay
The federal estate tax, better known as the death tax, was eliminated this year after a decade-long phase-out. Nothing in Washington is permanent, however, and due to a quirk in budget law, it comes roaring back to life in 2011 (less than four months from now) at a 55 percent rate and only $1 million exemption—its levels prior to the phase-out—unless Congress acts before the end of the year.
There have been sporadic efforts in the Senate this year to address this impending massive tax hike that will threaten the existence of family-owned businesses if it takes effect. None have succeeded. The failures are in some part due to pay-as-you-go (or PAYGO) budget rules that require Senators to “offset” the foregone revenue of keeping the death tax at any rate below 55 percent with spending cuts or tax hikes. This includes permanently continuing the death tax at its levels in 2009 prior to its expiration (45 percent and a $3.5 million exemption), which is President Obama’s plan.
This stubborn sticking point has stood in the way of an agreement all year and increased the likelihood that the death tax will return at a devastating rate and minimal exemption. Senator Max Baucus (D–MT), chairman of the Senate Finance Committee, has finally removed the stumbling block by saying that any death tax fix should be permanent and that the Senate should not worry about offsetting the cost. In addition to finally opening the door to an agreement in the Senate, Baucus’s reasoning is correct, because Congress should not have to pay for keeping in place long-held tax policy like the elimination of the death tax.
Now that Baucus has made it possible, is the time for the Senate to do the right thing and repeal the death tax completely and permanently. Anything but full repeal is a tax increase, since under current policy the death tax is 0 percent.
The death tax is an enormous drag on the economy. Repealing it would help businesses create badly needed jobs and aid economic recovery. There has never been a better time for Congress to rid American families of the burden of the death tax.