Roth Cheers Senate Vote to Repeal the Death Tax
WASHINGTON -- By a vote of 59 to 39, the Senate today voted to repeal the death tax. H.R. 8, the Death Tax Elimination Act of 2000, repeals the estate, gift and generation skipping taxes over a 10-year period. When fully implemented, the bill would ensure that the death of the property owner is no longer a taxable event. Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) made the following remarks:
"Today, the Senate has voted to eliminate an inherently unfair tax," Roth stated. "Taxpayers are taxed on their earnings during their lives at least once. Our nation has been built on the notion that anyone who works hard has the opportunity to succeed and create wealth. The estate and gift taxes are a disincentive to succeed and should be eliminated. I hope that President Clinton will sign this bill into law."
Despite the fact that the United States imposes the highest estate tax levies in the developed world, these taxes raise only between 1 and 2 percent of overall federal revenues.
Studies by the Joint Economic Committee, the National Center for Policy Analysis, the Heritage Foundation, the American Council for Capital Formation, the Institute for Policy Innovation, the Cato Institute, and others all indicate the federal estate tax imposes significant costs on the economy and family-owned businesses, resulting in lower economic growth, job creation, and the destruction of family businesses.
Description of H.R. 8 - Death Tax Elimination Act of 2000
H.R. 8 would reduce federal estate and gift tax collections over the next nine years, followed by full repeal in year ten. The bill includes a number of provisions that will affect estate tax collections, including:
Rate Reductions: Prior to repeal of the estate, gift, and generation-skipping transfer taxes in 2010, H.R. 8 would reduce the estate tax rates across-the-board. Rates would be reduced to no less than the lowest individual income tax rate for unmarried individuals. Specifically, the bill provides the following:
• 2001: Eliminates the 5-percent "surcharge" levied against estates to capture the tax benefit of graduated rates and eliminates the top rate of 55 percent;
• 2002: Reduces the top estate-tax rate to 50 percent;
• 2003-2006: Reduces all estate tax rates -- from 18 percent to 50 percent -- by one percentage point per year. Under this provision, the top estate-tax rate in 2006 would be 46 percent.
• 2007: Reduces all estate tax rates by 1.5 percent. The top estate-tax rate is now 44.5 percent.
• 2008-2009: Reduces all estate tax rates by 2 percentage points. Top rate is now down to 42.5 percent.
Unified Exemption: Under current law, estates subject to the death tax are eligible for a unified tax credit, which has the effect of exempting from taxation estates valued up to $675,000. This exemption is scheduled to rise to $1 million by 2006.
H.R. 8 would change the unified tax credit into a unified tax exemption, equal to $675,000 in 2001 and growing to $1 million by 2006. The shift from the credit to exemption has the effect of reducing the estate tax rates on smaller taxable estates by a considerable amount. For example, under current law, an estate valued just above $675,000 is subject to a marginal tax rate of 37 percent. With a unified exemption, the marginal rate falls to 18 percent.
Step-Up Basis: The bill would replace the current unlimited step up in basis with a limited step up for transferred assets up to a certain amount. Currently, all assets transferred following the death of their owner receive a step-up in basis. H.R. 8 would replace this universal step-up with a step-up limited to $1.3 million of the total assets transferred. For assets transferred to a spouse, the limit would be $3 million.
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