Estate Tax Repeal Disguised As Income Tax Cuts

For many years Republican lawmakers have made efforts to repeal the federal estate tax, a push they will soon renew.  Yet, behind this smokescreen of estate tax repeal is an income tax cut excusing heirs of the rich from all taxation on unearned, inherited wealth. 

The impact of this repeal effort has rendered the estate tax system so permeable that it is essentially voluntary.  Through the use of trusts and other estate planning tools, America’s wealthy can avoid the estate tax outright.  In recent years, trillions of dollars of wealth has been placed by the super-wealthy in giant trusts, safely beyond the grip of the estate tax.

So why would Republicans push for its repeal?  The answer has to do with income tax.  The trade-off for those paying the estate tax has been that the assets held at death would receive a step-up in basis, allowing the estate to avoid paying income tax on capital gains.  By circumventing the estate tax, the super-wealthy must surrender the basis step-up.  Republicans in Congress have introduced legislation to cure this problem; ensuring that they can both avoid the estate tax and receive the step-up in basis, and the capital gains created over the long-term holding of a constructive asset are never taxed.

See Josh Hoxie, Guest Post: When Income Tax Cuts Masquerade As Estate Tax Repeal, Forbes, Oct. 1, 2014.

Special thanks to Brian Cohan (Attorney at Law, Law Offices of Brian J. Cohan, P.C.) for bringing this article to my attention.