Death and taxes will continue

No big surprise here. The House is expected to propose a one-year
extension of the federal estate tax rather than let the scheduled 2010 full repeal take effect, according to the Wall Street Journal.

Federal estate taxes were first collected in 1916. I'm sure complaints about the tax started that year.

Thanks to 2001 tax legislation, the tax is being phased out. The table below shows the current exemption schedule and the tax rate applied to property over that amount. If no Congressional action is taken by Dec. 31, the federal estate tax
will disappear next year, but it will return in 2011 with the more costly, pre-law-change rules in effect; that is, a 55 percent tax rate with only the
first $1 million of an estate exempted from taxation.

Politically, no one wants the higher rate and exclusion amount to return in 2011, so the conventional wisdom has been that Congress would take care of the estate tax once and for all (as much as "once and for all" means on Capitol Hill) and work out a permanent (again, accounting for Congressional semantics) estate tax fix based on 2009 figures.

But all sorts of things, such as stimulus bills and health care reform battles, have shunted the estate tax off to the legislative side.  And now, with total estate tax repeal fast approaching, lawmakers apparently have decided a temporary fix is better than nothing.

Who could blame them for wanting to make sure the estate tax stays on the books. With all this crazy talk about nonexistent health care "death panels" (by the way, expect the provision that sparked this falsehood to be dropped from the final reform bill), letting the estate tax expire might be seen by the lunatic fringe as yet another reason why heirs might want to pull the plug on a rich relative next year. And given the economy and human nature, it's probably better to avoid any possible temptation. (Ms. Cynical, your table for one is ready.)

So the House will likely propose to scrap the one-year repeal and
instead apply this year's estate tax rate and exemption for another year.

Place your political bets: Some Congress watchers say a more long-term fix might be possible
before December runs out. But just in case, the Hill is once again
hedging its bets.

Speaking of bets, the estate tax situation is a perfect example of of how much Washington, D.C., resembles Las Vegas. Some hunches and wagers pay off; others don't.

The estate tax, or what the law's opponents like to call the death tax, has always had more value as a political bludgeon than a real
revenue raiser. It only affects at most 2 percent of the taxpaying
population, but it provides a lot of opportunity for hand wringing and
anti-tax railing.

And its repeal, instituted during Dubya's administration, was similarly political, as well as a bit disingenuous. Its total elimination was predicated on the possibility that the no-estate-taxers would still be in control of Capitol Hill when the law finally disappeared.

Again, some bets you win, some you lose. And politicians, like gamblers, know you play the hand you're dealt.

So with elections rolling around again in 2010, they're looking for
ways to make the estate tax pay off or at least not produce a loss. A temporary retention of 2009 rates should do that.

It will help the mostly Democrats, who want some kind of tax, and the mostly Republicans, who want the estate tax gone, a chance to make their respective campaign trail pitches without worrying about an actual, major change to the tax code.

Related posts:

• A tax by any other name
• Day of the Death Tax
• Discussing 'death tax' alternatives
• Jackson estate taxes could be 'Bad'