On June 22, the House voted 296 to 156 in favor of Chairman Bill Thomas’s estate taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. bill, the Permanent Estate TaxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. Relief Act of 2006.
“Permanent” might strike the average reader as an odd choice for the title. No tax law has ever been permanent because each Congress has the right — and apparently feels the duty — to change every rate and rule in the code.
But “Permanent” is a well chosen word in this case because the bill aspires to replace estate tax laws that are about to give taxpayers a wild ride. Current estate tax law has been like a boring roller-coaster since 2001, with rates gently sloping down each year and exemptions slowly creeping up. The terrifying part of the ride is set to begin in 2010 with a thrilling dive to total repeal, followed by a neck-jerking restoration of the old 55% in 2011. We recently blogged on the awful consequences of these sudden, dramatic changes.
The Thomas bill would smooth this out somewhat by establishing rates of 0%, 15% and 30% that would not change from year to year, and exemption levels that would only change with inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. .
“Relief” is also a well chosen word for the title, to contrast it with “Repeal,” a word that was part of the last estate tax bill the House passed, over a year ago now. Republicans and a few dozen Democrats have championed repeal for many years, so settling for “Relief” strikes some of them as settling for too little. Economist Bruce Bartlett, author of a recent book bashing President Bush, is one of the most articulate voices for total repeal.
For more on the federal estate tax, be sure to see our recent report here.