These are odd times. There are numerous reports that the estate tax audits are tougher than ever especially with respect to valuation. This would indicate that the treasury is looking for more revenue. Yet in spite of this, Congress allowed the estate tax to terminate for 2010. Since there is no estate tax, it stands to reason that the government should be losing revenue. Estate tax returns declined from 121,715 filed in 2001, to 49,924 in 2007. The decline occurred even though the taxpayers became wealthier during that time period. The obvious cause for the decreased filings is the increased exemption which rose from $675,000 in $2001 to $2,000,000 in 2007. Now that there is no estate tax there will be no filings for 2010 (unless an estate tax is enacted) and no government revenues.
In just one recent estate, inaction by Congress has cost the government approximately $4 billion in estate tax revenue. Mr. Duncan, a Texas billionaire was the first billionaire to die this year. His estate is valued at approximately $9 billion. Add to this loss, the estate tax that would have been collected on all of the millionaires who died since January 1, 2010. Along with the revenue issue, Congress’s failure to act caused a multitude of problems with many taxpayer’s estate plans. More likely than not, the majority of taxpayers did not modify their estate plans to include the new provisions necessary to avoid capital gains by heirs who liquidate inherited assets. This topic is discussed in our previous blogs.
Such a substantial loss of tax revenue is inconsistent with the reported need by the current administration for more taxes to increase revenue for budgetary reasons. For example, Obama’s 2008 budget estimated that the treasury could raise $5.4 billion by taxing dividends and capital gains at 20% for individuals with income above $200,000 and families above $250,000. Yet Congress completely dropped the ball when it came to reenactment of the federal estate tax. Congress’s inability to “get with the program” has now manifested a loss of $4 billion in tax revenue with the death of just one taxpayer. Death without taxes…..the government’s losses keep mounting. Let’s see what Congress does in the coming months.