[Congressional Record Volume 147, Number 100 (Wednesday, July 18, 2001)]
[Extensions of Remarks]
[Page E1360]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                  CHANGE IN ESTATE TAX WOULD HURT MANY

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                           HON. DOUG BEREUTER

                              of nebraska

                    in the house of representatives

                        Wednesday, July 18, 2001

  Mr. BEREUTER. Mr. Speaker, this Member would ask his colleagues to 
consider carefully the following Op-Ed from the July 7, 2001, edition 
of the Omaha World Herald, entitled ``Change in Estate Tax Would Hurt 
Many,'' as this Op-Ed raises some of the very concerns raised by this 
Member.

              [From the Omaha World Herald, July 7, 2001]

                  Change in Estate Tax Would Hurt Many

                          (By Gary L. Maydew)

       The new tax bill gradually raises the exemption from estate 
     taxes from the current $675,000 to $3.5 million by the year 
     2009. The estate tax is then scheduled to be repealed for the 
     year 2010 (through only for one year). So the new law is much 
     better for estate holders in Nebraska and Iowa who hold a lot 
     of appreciated farmland, right?
       Not so fast. Accompanying the repeal of estate taxes will 
     be a change in the income tax basis for inherited assets that 
     will be much worse for all but a handful of estates than is 
     the current estate tax. Under current law, the income tax 
     basis of property inherited is ``stepped up'' to fair market 
     value at death. This means that the unrealized capital gains 
     existing at death are never taxed. The new law will, 
     effective in 2010, change the basis to what is known as a 
     carry-over basis. Result: The seller of the property will 
     have a whopping capital gains tax bill.
       Example 1: Assume that I.B. Widow dies in 2001 holding 
     farmland with a value of $1 million. The land was purchased 
     many years ago at a cost of $200,000. After deducting various 
     expenses, her taxable estate before the exemption is 
     $675,000. Therefore the unified credit (which has an 
     exemption equivalency of $675,000) results in zero tax. 
     Shortly thereafter, her heirs sell the land. Because their 
     income tax basis is stepped up to $1 million, they will have 
     little or no taxable gain on the sale.
       Example 2: Assume the same facts except that she dies in 
     2010. Again there is no estate tax: But now when her heirs 
     sell the farmland, her tax basis of $200,000 carries over to 
     them. Result: They have an $800,000 capital gain and could 
     owe as much as $160,000 of tax.
       Congress must have a short memory. The stepped-up basis 
     rule was briefly repealed in 1976. The resulting outcry from 
     tax practitioners who had the difficult (often impossible) 
     job of determining the tax basis of decedents' property was 
     so loud that Congress retroactively repealed the law change.
       Under current law, only a tiny percentage of decedents even 
     have to file federal estate tax returns (3.4 percent for 
     those who died in 1995). Only 668 estate tax returns of 
     Nebraska residents were filed in 1997. Those decedents had an 
     average gross estate of about $1,480,000 and paid an average 
     estate tax of slightly more than $94,000.
       So in return for exempting a very small number of wealthy 
     decedents from estate tax, we will be subjecting millions of 
     heirs to a capital gains tax on property they inherit, and 
     further subjecting them to the difficulty of providing the 
     tax basis of property that may have been acquired decades 
     earlier. This is not a good trade-off.

     

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