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House Republicans Approve Repeal Of US Estate Tax

by Mike Godfrey, Tax-News.com, Washington

21 April 2015


The US Republican-led House of Representatives voted on April 16 to repeal the estate tax, despite Democratic party and White House opposition.

Until 2012, estates paid a 35 percent tax above a USD5m cap. The estate tax, or "death tax" as it is commonly known, was scheduled to revert in 2013 to 2001 tax law, with a USD1m exemption and a 55 percent tax rate, but the enactment of the American Taxpayer Relief Act indexed its USD5m exemption for inflation and set a 40 percent tax rate.

The burden that the tax places on family businesses and farms had been the subject of much discussion in the House, and the Death Tax Repeal Act of 2015 has now been passed on partisan lines in a 240-to-179 vote.

When introducing the Act, Kevin Brady (R – Texas), a senior member of the House Ways and Means Committee and the main sponsor of the bill, said: "The death tax is the wrong tax at the wrong time and hurts the wrong people. It's the number one reason why family-owned businesses aren't passed down to the next generation. … Instead of hiring more workers and investing in their business the death tax diverts their precious dollars and time to estate planning."

In a recent hearing, he added that "this tax is not about reducing income inequality. Because it's not the super-rich that pay this tax. No, it's the small business owner whose assets are tied up in buildings, machines, and property that pays the estate tax."

However, leading opposition to the Act in the House, Ways and Means Health Subcommittee Ranking Member Jim McDermott (D – Washington) pointed out that "the estate tax is only paid by about 5,400 families – or the top 0.2 percent of estates in this country. Estates worth less than USD5.4m pay nothing. And what is the cost of providing a tax break to the top 5,000 families in the US? USD269bn [as calculated by the Joint Committee on Taxation (JCT)]."

As the Committee's Ranking Member Sander Levin (R – Michigan) had noted previously, "that is USD269bn to benefit 0.15 percent of taxpayers. Three-quarters of the benefit of this bill accrues to people inheriting estates worth more than USD20m."

However, others have noted that the JCT's "static" analysis ignores the effect that repeal of the estate tax would have on encouraging US investment and savings. In a recent study, on a "dynamic" basis (accounting for potential changes in taxpayer behavior), the Tax Foundation (TF) found that its repeal "would gradually increase the US capital stock by 2.2 percent, boost gross domestic product, create 139,000 jobs, and eventually increase federal revenue."

The TF concluded that, "as estate taxes become narrow-based, meager revenue sources, with high administrative costs, repeal becomes a strong option. Thirteen OECD countries or jurisdictions have repealed their estate or inheritance taxes since 2000."

It is not known if the Act will be taken up by the Senate anytime in the near future. However, it would be vetoed by President Barack Obama if it ever reaches his desk, as he has already recently proposed to go in the opposite direction and increase the tax's incidence.

TAGS: inheritance tax | tax | small business | business | law | legislation | tax rates | United States | Tax

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