If it seems as if Congress has been wrangling over the estate tax for decades, that is because it has. Though majorities in both houses of Congress have supported repeal and the law has been changed frequently, the death tax just will not die. Why not? The short answer is: because politicians like seeing the tax languish on its deathbed.
When it comes to nondisclosure, the United States government is the father of all financial malfeasants. Indeed, Uncle Sam has been misrepresenting the nation's finances for decades. In the process, he has run up an undisclosed bill that makes the financial bailout and economic stimulus spending look paltry.
The estate tax is not yet dead, by a long shot. Federal taxes on estates fell as a result of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). In fact, the estate tax will even disappear for one year (2010) due to EGTRRA. In 2011, it is scheduled to return with a higher tax rate and lower exemption than before. However, Congress is expected to pass legislation applying the tax retroactively to those who die in 2010.
Congress is considering establishing a new agency to regulate consumer financial products and services – everything from home equity loans to credit cards to pawnshops.
Congress is facing a tax deadline. Under legislation passed in 2001, the federal estate tax is being phased out: The tax rate is falling and the value of the property of the deceased that is exempted from the tax is rising. The tax is scheduled to disappear in 2010, but it will return in 2011 at pre-2001 rates – up to 55 percent for estates valued in excess of $1 million. The Senate voted in April 2009 to reduce the rate of the revivified tax to 35 percent, but the House of Representatives has not acted.
As soon as 2010, small businesses could face three simultaneous tax hikes that would raise their marginal tax rate as high as 66.9 percent. Democrats in Congress plan to raise taxes on top earners by allowing some of the Bush tax cuts to expire. Draft legislation in the House of Representatives to overhaul the health care system contains two additional proposals that aim to soak the rich. However, these tax hikes will drench small businesses.
The recent expansion of the State Children's Health Insurance Program (S-CHIP) was funded by an increase in federal excise taxes on tobacco products. Congress increased the federal tax on cigarettes by 61 cents per pack and raised the tax on other tobacco products, with the goal of equalizing the tax per pound of tobacco.
Some members of Congress want to raise excise taxes to pay for health care reform and energy technology development. Federal excises on tobacco and alcohol are often called sin taxes; others designed to pay for specific government services, such as gas taxes that fund road building and maintenance, are often called user fees.
The Obama administration is committed to using federal spending over the next few years in hopes of turning the economy around. It will be funded by continuous, massive budget deficits. Will deficit spending bring about economic recovery? Will a return to Keynesian economic policy bring us economic prosperity?
Globalization and capital mobility are increasing tax competition among countries. Lower tax rates increase after-tax returns to capital, raising economic growth rates. They can also make economies more attractive for foreign investment. Furthermore, lower taxes on capital are generally associated with increased government tax revenues.
The marriage penalty is a quirk in the tax code that pushes married couples into a higher tax bracket than two unmarried single earners living together and earning the same combined income. The 2001 Bush tax cuts all but eliminated the marriage penalty by lowering tax rates and simplifying other elements of the tax code. However, these Bush tax cuts expire in 2010, and American families face steep marginal tax increases if Congress fails to renew them.
Critics complain that the 2001 and 2003 Bush tax cuts gave the greatest tax relief to the wealthiest taxpayers. However, every major tax bill over the past 15 years — both Republican and Democrat — has increased the progressivity of the federal income tax system.
In May 2003, President George W. Bush signed into law his investment tax cut. This package included accelerated reductions in income tax rates, a cut in the dividend tax from 39.6 percent to 15 percent and a reduction in the capital gains tax from 20 percent to 15 percent.
Over the next 25 years American taxpayers will face a fiscal tsunami. The first of the baby boomers will be eligible for early retirement beginning next year, and will be eligible for Medicare in 2011. The last of the Baby Boom generation, born in 1964, will reach normal retirement age (67 years) in 2031. Most baby boomers are approaching their peak earning years when they have the greatest capacity to save for retirement.
The individual alternative minimum tax (AMT) was originally designed to tax wealthy households who paid little income tax due to deductions and credits they claimed. However, today's AMT is hitting more and more middle-class households in spite of temporary fixes (such as raising the threshold of income not subject to the AMT). The last temporary patch expired at the end of 2006.
In the wake of the August 1, 2007, Minneapolis bridge collapse, Rep. Jim Oberstar (D-Minn.), chairman of the House Transportation and Infrastructure Committee, proposed a 5-cents-per-gallon increase in the federal excise tax on gasoline. Oberstar believes the hike would raise $25 billion over three years for critical bridge repairs across the United States. But his proposal flies in the face of growing public concern over sustained high gas prices.
The Alternative Minimum Tax (AMT) is an income tax monstrosity that denies middle-to-high-income people deductions that would otherwise be legitimate. The AMT requires an increasing number of taxpayers to compute their tax liability under the standard tax rules. Then, they compute it under the AMT. Then, they pay the greater of the two; minimum does not mean minimal.
Charitable gift funds are more than a toy of the nearly rich. They offer a surprising advantage to retirees with ordinary incomes. Using a charitable gift fund, a retired couple can increase their giving or increase the amount they spend on themselves. Or they can do a bit of both.
Texas needs to end its addiction to inefficient, unresponsive public policies. To that end, the Legislature should go cold turkey and consider 12 radical changes.
Some activities of government clearly contribute to economic growth. Beyond some minimum level, however, government becomes a net drain on the economy. Empirical evidence shows that as the tax burden rises beyond a certain level, the rate of economic growth slows.
This summer, the Senate fell short of the super-majority needed to bring to a vote a measure permanently repealing the estate tax.
It is commonly assumed that inheritances are a major source of wealth inequality and that the offspring of wealthy families tend to be as rich as their parents due to bequests. This perception is one reason why many people support taxing estates at death. But an individual's skills and personal choices are far more important in determining household wealth than inheritances. In fact, the contribution of inheritance is surprisingly small.
The Alternative Minimum Tax (AMT) enacted in 1978 was intended to tax the small number of wealthy individuals who, in any given year, legally owe no personal income tax due to the many exemptions allowed by the U.S. tax code.
Congress is debating repeal of the estate tax — again. The 2001 tax cuts included a gradual phase-out and full repeal of the estate tax in 2010. But due to the sunset provision imposed by federal budget rules, the estate tax will reappear at its full pre-reform rates in 2011. At that time, estates in excess of $2 million will be taxed at the old rates — up to 55 percent.
The Social Security benefits tax – while nominally a tax on Social Security benefits – is really a tax on other retirement income like pensions or personal savings. And it inflicts some of the highest marginal tax rates in the entire federal tax code.