Pros & Mainly Cons of Repealing the Estate Tax

The estate, or inheritance, tax is a federal tax levied on possessions given to others by a person after their death. Most estates are exempt from this tax because the value of their possessions is less than the tax "threshold." The IRS said that just over 2 percent of people who died in 2001 left estates that were subject to taxation.

In his first year in office, President Bush put forth a 10-year, $1.35 trillion tax cut for the wealthy, which included a slow phaseout of the estate tax by 2010. When this law expires in 2011, the entire estate tax is reinstated.

In 2005, estates worth less than $1.5 milion, or $3 million for a couple, owe no estate taxes. By 2009, the tax exemption threshold increases to $3.5 million for an individual and $7 million for a couple.

The Bush Administration recently proposed a permanent repeal of the federal estate tax. This repeal would decrease government revenues by about $745 billion over 10 years, plus interest. The total loss to federal government coffers would be $1 trillion from 2012 to 2021.

On April 13, 2005, the Republican-led House of Representatives voted 272 to 162 to permanently repeal the estate tax.

House Democrats, led by Democratic House Leader Nancy Pelosi,proposed a compromise bill that would substantially increase the estate threshold for taxation, leaving only extremely wealthy estates to generate tax revenues for the government. That measure was narrowly defeated by a vote of 238 to 194.

In fact, the House has several times passed legislation since 2001 repealing the federal estate tax, but these huge tax cuts have always been defeated in the Senate.

Permanent repeal of the federal estate tax would decrease government revenues by $745 billion over 10 years after 2011, plus interest on those funds. The total loss to the federal government would be about $1 trillion during exactly the same time period as when Social Security solvency begins become an issue of immediate concern.