Congressional Republicans have narrowed the estate tax so much that it affects only about 5,500 wealthy American households a year. Now they want to eliminate the tax altogether -- with a bonus for heirs.
Under the latest plan, backed by farmers and business groups, estates would pay no taxes. Furthermore, heirs wouldn’t owe any capital gains taxes on the increased value of assets over the deceased’s life.
That move -- simpler and more generous than previous repeal efforts -- would let billions of dollars in income and assets escape all U.S. taxes. The plan would cost the U.S. government $269 billion in lost revenue over a decade.
The House of Representatives will vote this week on the latest effort to repeal the tax, which is now paid by only 0.2 percent of U.S. estates. Republicans are drawing attention to what they see as an unjust levy by bringing up the legislation at the annual tax-filing deadline.
They’re also shrugging aside criticism from President Barack Obama, who calls the plan a budget-busting handout to the nation’s wealthiest families at a time when lawmakers should focus on the middle class. Instead, they’re moving in the opposite direction, making repeal more attractive for business owners and creating an even wider gap between the parties on how to tax inherited wealth.
The new Republican plan is different from past repeal bills in a technical yet important way. If it became law, families would be able to pass assets across generations and avoid capital gains taxes on both real gains and so-called phantom income attributed to inflation.
“When you look at the bill, it actually doesn’t make sense; it would get a bad grade in a law school final exam,” said Ed McCaffery, a law professor at the University of Southern California who favors repealing the estate tax. “That is telling old people, clutch onto things until they die. That’s not how the American economy works.”
The first full House vote on estate tax repeal in 10 years would reaffirm Republicans’ position to kill what they have long labeled the “death tax.”
It would also let the more than 60 percent of House members who were elected since the last repeal vote take a formal position on the issue.