Death Tax Repeal Could Hurt More Estates Than It Helps, Says Study

by Leroy Baker, Tax-News.com, New York

16 February 2005

John Buckley, chief tax counsel for the Democratic staff of the House Ways and Means Committee, has warned that the Bush administration’s plan to abolish estate tax could harm more people than it helps.

According to a report by Buckley in the journal Tax Notes, a permanent repeal of estate tax could subject more than 71,000 estates to capital gains taxes from 2010, while under current law, only 7,500 estates would be liable to pay death tax in 2009.

“There will be more losers than winners with repeal, and that will be particularly true for farm estates,” Buckley stated in an interview published by Bloomberg.

Under President Bush’s tax cuts, estate tax is being gradually reduced before being fully repealed for a period of one year in 2010, although the White House is working on a plan to abolish the tax permanently.

In its place would be capital gains tax at rates of between 15% to 28% on all inherited estates worth more than $1.3 million when they are sold. In 2009, estates valued under $3.5 million would be passed on tax-free, but according to Buckley, only 7,500 estates will have enough assets to trigger an estate tax that year.

Most of the 71,400 estates cited in Buckley's article would have more than $1.3 million in unrealized capital gains and have less than $3.5 million in assets, meaning they wouldn't have been liable for estate taxes.

However, Buckley’s analysis was rejected by Dick Patten, executive director of the American Family Business Institute, which is in favour of a permanent repeal of estate tax.

Patten believes that the study is flawed because it presents a mere “snapshot” of the law over a one year period when it is due to change three times, Bloomberg reported.

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