Article on the Estate Tax
Although he might not have known it, George Steinbrenner potentially saved his heirs $ 500 million by dying on July 13, 2010. In the year 2009, the estate tax in the United States was forty-five percent, meaning that Steinbrenner’s heirs would have owed nearly $ 500 million dollars in taxes upon receiving his $ 1.1 billion estate. At the date of his death, a fifty-five percent estate tax rate was set to take effect on January 1, 2011, which would have led to his heirs paying closer to $ 600 million dollars in taxes. However, as a result of the George W. Bush administration tax-cuts, the estate tax was repealed for the year 2010. In addressing the planned expiration of the Bush tax cuts in December of 2010, Congress decided not to require an estate tax to be imposed retroactively on the estates of those who died during 2010, meaning that Steinbrenner’s fortune passed to his heirs tax-free.
The Bush tax cuts were put into effect in the year 2001, and many people assumed that with the election of President Barack Obama in 2008, Congress would reinstate the estate tax with a compromise tax rate for the year 2010. However, as a result of the inaction of Congress, the issue of the estate tax was not addressed until December 17, 2010. There was much speculation as to how Congress would choose to address this lack of estate tax in 2010 as many analysts and politicians debated the issue. It was speculated that the year-long gap in the estate tax could cost the U.S. treasury an estimated $ 14.8 billion, and after numerous highly publicized deaths of wealthy individuals this year, many prominent attorneys and senators began to notice this major effect of the lack of estate tax. “In the midst of this terrible recession, the idea of giving billionaires a massive tax break is obscene,” stated Sen. Bernard Sanders of Vermont. “Already we have four billionaire families who are not paying taxes – Steinbrenner’s being the last one. Many billions are being lost. We have to address that reality right now.” Henry Christensen, a partner at McDermott Will & Emery and the president of the International Academy of Trust and Estate Counsel, echoed a similar sentiment to that of Sen. Sanders stating “because of Mr. Steinbrenner’s public name and stature, his death may draw the attention of Congress – they simply have to decide what to do.”
This debate came to an end on December 17, 2010, when Congress enacted the 2010 Tax Relief Act, which did not prevent this one-year estate tax gap. Although the Act imposed a thirty-five percent estate tax rate for 2010, it stated that, in order to prevent potential hardships of retroactive legislation, the estates of decedents who died prior to its enactment could elect to apply the original 2010 law of no estate tax. Therefore, this 2010 estate tax enacted by Congress was not applied to the Steinbrenner estate (and to the estates of the other 3 billionaires that died in 2010), allowing the heirs to inherit their father’s estate tax-free.
The Steinbrenner family would have faced a potentially complicated decision if the tax legislation had been imposed retroactively by Congress. As an article written in the New York Post on July 14, 2010 speculated, if required to pay taxes on their father’s estate, the Steinbrenner heirs would have been forced to sell their father’s share of the New York Yankees in order to pay the taxes. However, because of their ability to elect out of the 2010 Tax Relief Act, the Steinbrenners will be able to keep the legendary baseball team that George Steinbrenner had owned for the past 37 years. Therefore, the question this note will address is: Would it have been constitutional for Congress to apply the 2010 Tax Relief Act retroactively?
This note will discuss whether it would be constitutional for Congress to retroactively apply an estate tax to those wealthy individuals who died in 2010 and, if so, whether there would be any limitations Congress must consider in applying the tax. The note will also discuss the ramifications of Congress enacting a retroactive estate tax, and whether its negative effect on taxpayers would outweigh its benefit to the United States.
Part I of this note will begin by looking at the opposing views regarding the estate tax and the history of the estate tax in the United States. Part II will look at the history of retroactive legislation to see how it has been used by Congress and how it has been considered by the Supreme Court. Part III will discuss the specific arguments used by taxpayers against retroactive tax legislation, and will examine how courts have decided on each argument in the past. Part IV will examine the Supreme Court’s most recent decision regarding retroactive taxes: United States v. Carlton. Part V will discuss the specific arguments used by the taxpayer against retroactive estate tax legislation in NationsBank v. United States and will examine how the Court of Appeals decided on each argument. Part VI, will look at the potential ramifications of allowing Congress to impose a retroactive estate tax for 2010. Finally, Part VII will determine whether Congress could constitutionally impose an estate tax on decedents who died in 2010 based on the history of the estate tax and the recent case law relating to retroactive implementation of estate taxes. It will then discuss whether the negative effect that such a tax would have on taxpayers outweighs the benefit it would provide to the United States.