Future of the Federal Estate Tax

Another billionaire dies in year with no federal estate tax: John Kluge passed away at 96

Clare O'Connor, Billionaire John Kluge Dies At 96, Filthy Rich (a Forbes Blog), Sept. 9, 1010:

John Kluge, the oldest member of the Forbes 400, has died at 96. Kluge was to be on the upcoming 2010 list of America’s wealthiest people with a net worth of $7 billion, up from his $6.5 billion fortune on last year’s Forbes 400 list. His fortune increased by $500 million in the last year of his life thanks to low-risk investments and a cash pile swelled by a slight upturn in the markets. . . .

With Kluge’s passing, the Forbes 400 has a new oldest member: 95-year-old David Rockefeller Sr, grandson of oil baron John D. Rockefeller.

See:

• CBS News - “The University of Virginia said Wednesday that Kluge (pronounced KLOOG-ee) died Tuesday [Sept. 7] at his home near Charlottesville, Va.”
• NY Daily News
• NY Times
• USA Today

I updated Dying Free of the Federal Estate Tax: Billionaire Deaths in 2010 to reflect that five billionaires have now died free of the federal estate tax in 2010.  Meanwhile, Congress continues to dither.

Abigail Disney: "'Tax me'. . . it's what I am asking, and I hope that our leaders are listening"

On August 31, 2010, USA Today published an op-ed piece by Abigail Disney: Mickey Mouse, the estate tax and me.

Disney’s argument is captured in the following paragraph:

One thing I do know is this: In a far stricter tax environment, my grandfather still managed to accumulate and pass on ample funds to make three subsequent generations very comfortable indeed. And as an inheritor I am here to tell you, the estate tax is not as much of a bogeyman as you've been led to believe.

Disney makes the following points:

• “Walt Disney Co. benefited from a federal system of protections, laws and taxes that created fertile ground for building a business empire” – e.g.,
  • copyright protections for Mickey Mouse,
  • Federal Communications Commission, “[t]he transportation and federal highway system built in the wake of World War II,” and
  • the Marshall Plan, which “helped rebuild devastated European markets into which Disney poured its products, turning a quaint American company into a global brand”
• “the estate tax is not a double tax”
• “opponents of the estate tax claim family farms will have to be broken up to pay the tax, but good luck finding an example of this”
• “the estate tax incentivizes people like me to do good with our wealth because there is no estate tax on donations to charity”
• “To those who believe the estate tax is unfair, I say that there is no tax more fair than this one.”
• “Here at home, I have watched the gap between rich and poor driven to historic highs by a tax policy that has exacerbated our deficit and eviscerated our basic capacity to provide schooling, emergency services, and clean water and air for one and all. The estate tax is the cornerstone of a progressive system”
• “By preserving it, we not only restore billions in revenue to the national treasury — we also restore our most cherished collective ideals as a nation.”

Disney makes many of the arguments put forward by those who argue for a higher estate tax.  Disney’s concludes her op-ed piece by asking to be taxed:  “‘Tax me’ may be the least popular sentence in America, but it's what I am asking, and I hope that our leaders are listening.”

Observations:

[1] Disney is stating “Tax me,” but she is arguing that others should also pay higher taxes.  Disney’s conclusion is a loud pronouncement of her autonomy, but it also masks a paternalistic argument: she thinks others should be taxed at a higher rate as well.

[2] Disney suggests that she would be comfortable with an exemption of $3.5 million per individual:

opponents of the estate tax claim family farms will have to be broken up to pay the tax, but good luck finding an example of this. Further, if the exemption is kept at $3.5 million (where it stood last year) and indexed for inflation, the likelihood of this ever happening is reduced to nil.

[3] I am wondering whether Disney is benefiting from a dynasty trust.  If so, her “Tax me” assertion might be seen as (1) disingenuous because, by definition, there would be no estate tax imposed at each generation, or (2) as a playful challenge to Congress, “tax me . . . if you can.”  (Wealthy families that made generation-skipping transfers before 1986 received a lucky break because they could pass on wealth without being subject to the generation-transfer skipping tax.) 

For a related post, see UFE teleconference called on Congress to reinstate the federal estate tax.

USA Today: a "guessing game" replaces the federal estate tax in 2010

On December 29, 2009, USA Today published Estate tax set to expire Thursday, by Kevin McCoy.

McCoy refers to 2010 as a "guessing game":

what might seem like a potential tax savings has become a guessing game for taxpayers, accountants, estate planners and tax lawyers. The impasse also could mean capital gains taxes on more inheritances.

McCoy explains that this is one "game" practitioners did not expect to play:

"No one believed that Congress in its ultimate wisdom, with all the deficits looming, with a recession and two wars ... would ever allow the estate tax to lapse. But that's what's happening," said Martin Press, a tax attorney in Fort Lauderdale. "It's created great uncertainty."

The 2010 "guessing game" will begin with modified carryover basis rules, which could bite unexpecting taxpayers deeply:

• During the time the tax is not in effect, it would be replaced by a 15% capital gains levy on inherited property that's sold. That could be a deep bite, said Michael Halloran, president of the National Association of Estate Planners and Councils.
• "A lot of middle-income Americans could end up being affected by a tax they never expected," said Marguerite Mount, managing director of the MercadienGroup, a family of asset management, accounting and technology firms in Hamilton, N.J.