Is there a possibility the current estate tax will be repealed? This is a debate we have heard over and over again over the past several years, and as we head into the race for the White House, we are bound to continue to hear the pros and the cons for Estate Tax Reform.
Co-sponsor of the “Death Tax Repeal Act of 2015,” John Thune, R-S.D, announced the bill March 25, 2015 with the help of Sen. Chuck Grassleym T-Iowa, and Reps. Kevin Brady, R-Texas, and Sanford Bishop D-Ga. By a 22 – 10 vote on March 25, the U.S. House Ways and Means Committee passed H.R. 1105, the Death Tax Repeal Act of 2015. The bill would reduce the top gift tax rate to 35 percent, and keep the gift tax lifetime exemption at $5 million, adjusted for inflation after 2011. The bill would retain the present basis adjustments for property received from a decedent, and provide that a transfer in trust will be treated as a completed taxable gift, “unless the trust is treated as wholly owned by the donor or the donor’s spouse under [the grantor trust rules]”, except as provided by regulation.
Their reasoning for the reform is the estate tax imposes a tax rate as high as 40% which Thune’s office said hurts economic growth and small business development, and can put family owned businesses into a financial bind. Thune cited a 2012 study from the Republicans’ Joint Economic Committee that suggests ending the estate tax would actually increase overall federal tax revenue by encouraging more investment.
Supporters of estate tax suggest the current estate tax provides an incentive to the wealthiest Americans to leave part of their estate to charity since charitable contributions are tax deductible. Their fear is that reform could dramatically reduce charitable giving as wealthy individuals decide to leave their vast estates to heirs rather than charities. Additionally, they suggest repeal of the estate tax goes against the founding ideals of our country. Richard T. Ely (founder of the American Economic Association), summed up this thought in 1888 when he wrote:
“One of the principles which controlled the action of Jefferson and other founders of this republic, was the abolition of hereditary distinctions and privileges, and their aim was to force each one to rely on his own exertions for his own fortune, desiring to give to all as nearly as practicable an equal start in the race of life.
It has also been urged by others that one of the most dangerous tendencies of our times is the increasing aggregation of wealth in a few hands. This scheme is a slight corrective, which is in harmony with the spirit of our institutions.”
So as more contenders throw their hat into the presidential race, stay tuned to the ongoing debates on The Estate Tax Repeal Act of 2015.
By Pamela Wheeler, EA