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Opinion: Poll: Killing, then resurrecting, the ‘death tax’

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Today’s Times editorial on the fight between congressional Democrats and Republicans over the estate tax points out a curious fact: The much-derided ‘death tax’ will actually go up in 2011 -- to 55% on estates worth more than $1 million from its current 45% on estates worth more than $3.5 million -- as a result of the tax-cut legislation signed by President Bush in 2001. The editorial explains:

The troubles began with reforms approved by the Republican-dominated Congress in 2001, which led to a gradual decrease in estate taxes. The current tax of 45% on estates worth more than $3.5 million (or, for couples, more than $7 million) is slated to expire in 2010. But it doesn’t go away permanently. In 2011, without congressional action, it will revert to a rate not seen since the 1990s: 55% on estates worth more than $1 million.

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The House passed a bill to avoid this mess by permanently extending the current rate, but unified Republican opposition in the Senate halted progress. GOP leaders, who want to eliminate or lower the tax burden, saw that as a victory. ‘I don’t see a problem -- we aren’t going to have an estate tax next year,’ said Sen. John Kyl (R-Ariz.). OK, then we’ll explain it.

The estate tax might be gone in 2010, but its departure triggers a new tax, this one on capital gains. It applies to anyone who inherits more than $1.3 million in assets next year. Let’s say Grandma dies and leaves you a home worth $1.5 million, and you decide to sell it. Normally you’d pay little or no capital gains tax on the sale, but the new provisions mean that you have to calculate capital gains based on the value of the home when Grandma and Grandpa bought it, not when you inherited it. That could prove hugely expensive. House officials estimate that extending the estate tax would have affected 6,000 people, but the new capital gains provisions will affect more than 70,000. And in general, those 70,000 will be far less wealthy than the heirs affected by a status quo estate tax.
What are you thoughts on this issue? Are Republicans right to hold out on the estate tax to score political points against Democrats, even if the tax’s much-heralded expiration lasts for only a single year? Or should Congress kill the death tax altogether? Take our unscientific poll, leave a comment or do both.

-- Paul Thornton

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