An Austin Home Companion

A tax by any other name

Last week, Congress took up what Stephen Colbert described as one part of the Axis of Mid-Term Evil: the estate tax.

Grim_reaper_2 OK, he referred to it in The Word segment (trust me, he figured a way to work it into that World Cup video) of the Colbert Report as the death tax.

And that is the real issue.

First, some background.

Five years ago, the estate tax was repealed. Only one problem: Federal lawmakers turned the tax into a zombie.

Since 2001, the estate tax has has been gradually phasing out, working toward total elimination in 2010. But it's a short-lived death.

The tax is slated to return, in its tougher pre-2001 incarnation, in 2011 … unless Congress changes the law that changed the law.

The House voted more than a year ago (April 13, 2005) to put the estate tax permanently to rest. The Senate has been more measured. Senators had planned to take up the issue last fall, but it seemed sort of icky to be arguing for a tax break that benefits only the most-wealthy Americans while we were watching some our poorest neighbors in New Orleans deal with the aftermath of Hurricane Katrina (and the subsequent incredible FEMA failure).

So the Senate has been biding its time. That time came June 8, when all the members of the world's greatest deliberative body had to do was get 60 votes to allow the actual estate tax repeal bill to come to a vote. They fell three "ayes" short.

Opponents of the tax repeal say it's a sop to the wealthy; even in its 2011 form, it will affect only estates worth $1 million or more. Ardent supporters of full repeal wanted all or nothing, scoffing at a compromise that would have kept the tax but applied it to estates worth $5 million ($10 million for married couples) or more and would have lowered the tax rate on those who would have to pay it. The backers of the compromise say they'll try again, possibly as soon as next week.

It's easy to see why 329 Congressmen and women (272 in the House, 57 in the Senate) support repeal. They tend to have more money than you and I. They also get campaign contributions from people who have a whole lot more money than you or I (or even many members of Congress).

But these estate tax opponents say they are only doing what their constituents want, quickly pointing to public opinion polls that show most Americans are for estate tax repeal.

I'm sorry. They want the death tax repealed.

The numbers vary depending on who's doing the polling, but there's no denying that yes, the majority of us (and I'm using the universal "us") say kill the death tax!

Now the average Joe and Josephine know that they face no imminent threat from this levy. Right now, you have to leave assets of more than $2 million before the tax kicks in. That same limit applies in 2007 and 2008, before rising to $3.5 million in 2009. And remember, that applies to each person's estate. So a married couple could effectively protect twice those amounts from the estate tax.

Then in 2010, the tax ends. Anyone who dies that year, regardless of how much they leave, will face no tax. Well, they'll be gone, so they don't really care. But their estate executors and heirs will be sad about the loss of very rich old Uncle Billy, but glad of his sense of timing.

But come 2011, and the tax is back and at the pre-law change levels.

So why do Joe and Jo care so much about a tax that doesn't affect them?

Part of it is just pure, seemingly innate anti-tax sentiment that politicians have so masterfully learned to tap.

Another component is the American Dream. Many of us cling to the hope that one day we, too, will be jetting around the globe as part of the uber-rich class. Hey, similar delusions have kept "American Idol" atop the Nielsen ratings.

But a key part of the public loathing of the tax is in how it is described.

Opponents never refer to it as a tax on estates or an inheritance tax because that connotes the filthy rich; you know, those people whose ranks we want to one day join. Until we do, though, those folks remain quite different from you and I and they can damn well afford to pay that and any other taxes Uncle Sam might see fit to levy.

Death, however, is something we all share. Some of us just get nicer caskets. And if we can't cheat death, we can at least keep IRS hands off of anything we leave behind.

The term "death tax" was a very precise choice. It originated in a memo from Republican pollster Frank Luntz, who recommended that the party use death tax because it "kindled voter resentment in a way that inheritance tax and estate tax do not."

In looking at a poll last year, the legal publisher BNA reported that differing descriptions of the tax do indeed shape public opinion. While 58 percent of voters said the "death tax" was completely unfair, only 48 percent thought that when asked about the "inheritance or estate" tax.

Taking it a step further, pollsters found that when they asked questions involving attitudes about wealth, another 58 percent said that estate taxes "make up for some of the money that is lost" due to tax strategies adopted by "the wealthiest families."

So the estate tax makes sure the rich don't get away with not paying their fair share, but a death tax is totally unfair.

Explains why advertisers hold so much power in our society, doesn't it?

100 years of the estate tax: One of the great political ironies is that the tax, then dubbed the inheritance tax, was enacted while Republican Teddy Roosevelt was president.

He was a supporter of the levy. You can read his thoughts on the tax, as well as those of other famous -- and rich -- supporters of the estate tax here.

I discussed the rich families that today are pushing for and funding efforts to repeal the estate tax in this blog entry.

And you can find a couple accounts of the estate tax's history here and here.

A not-so-final tax epitaph: Even if the estate tax is repealed for more than a year, if you leave a lot of assets, a tax collector still could take a chunk depending upon where you live and die.

Tombstone_2 Several states levy their own estate taxes, as well as inheritance taxes on bequests you leave, something even Uncle Sam doesn't do. These state estate taxes generally piggybacked on the U.S. version. Some have changed their laws to be in line with the federal estate tax and thus have eliminated the state charge.

Others, however, have decoupled from the federal estate tax are still collecting their own such levies. This will continue regardless of what happens at the federal level.

You can check out your state's position on estate and inheritance taxes here.


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