Wednesday, March 10, 2010

Estate tax reform scenarios

Recent summaries of the discussions at the Heckerling Institute suggest that no one yet has a clear idea of what will happen to federal estate taxes this year.  The odds of nothing happening at all seem to be going up. 

Is it possible that death tax opponents want to set the precedent of a full year without estate taxes? 

One would think that the prospect of a return to a $1 million exemption next year would focus some minds on the problem, and that they would want to strike a bargain now to avoid that development.  But are death tax opponents starting to think that the Republicans may gain enough seats in November that they can strike a still better deal next year?

Many rich people, such as Warren Buffett and Bill Gates, advocate high estate taxes.  Of course, those men will use philanthropy to avoid such taxes on their own estates.  That is, rather than send a portion of their fortunes to Washington to contribute to general government operations, they exercise a choice over which public agencies and what purposes will be funded with their wealth. 

What is striking in the public discourse is that the focus is always on how few large estates will be subjected to the federal estate tax, which in some calculus makes such a tax more "fair."  What is absent is an analysis of the far larger number, the potential beneficiaries of those large estates.  Many people hope to be beneficiaries, which may account for the unpopularity of death taxes.

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