As many note the passing of long-time New York Yankees’ owner, George Steinbrenner, and discuss his outsized impact on New York City and on baseball, perhaps his celebrity will prompt the U.S. Congress to finally come to terms with an important tax issue.
It feels unseemly to discuss financial matters right after a person’s death. But it’s a financial news event whenever an American of significant wealth dies because of Congressional inaction. The news is that right now, no matter how wealthy the person who passes away, there is no federal estate tax.
This is not a call for any specific level of estate tax, itself a subject of heated debate in Congress and in the country. It’s a call for Congress to have a consistent level of tax for a reasonable number of years.
As press reports have noted, Steinbrenner’s fortune – Forbes estimated his net worth at about $1.15 billion – wouldn’t be subject to estate tax because in 2010 there is no federal estate tax.
In 2009, the federal estate tax rate was 45%. In 2011, if Congress doesn’t act, the rate will be 55%.
This stunningly irresponsible set of circumstances occurred because of Congress’s inability to act on deadlines it essentially set for itself back in 2001.
At that time, tax-cutting was in vogue, but there was a compromise achieved by essentially making annual reductions in the estate tax temporary. Said another way, Congress kicked the can down the road.
After a declining rate starting from 2001, the rate went to zero for 2010 and then reverts to 55% in 2011. The idea presumably was that no one who voted on the measure would want the zero rate or the 55% rate to ever be put into practice.
Those two opposing-ends-of-a-bell-curve numbers were put there essentially as a warning from Congress to itself. We put off a decision, but we have a whole bunch of years to work things out. They haven’t yet worked things out.
Some have speculated that if Congress finally does get around to stepping up and settling the state tax issue, it will try to apply the rate retroactively, making the heirs of those who pass away in the tax-free year of 2010 pay something.
The idea of retroactivity has raised legal questions. More imporatnt, it assumes Congress will finally do something to settle the estate tax issue.
Pardon our skepticism on that score.