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ESTATE TAX STANDOFF: EVIL, OR STUPID?

August 17, 2005

Pondering the state of the estate tax -- scheduled to vanish in 2010 and return with a vengeance a year later -- tax attorney Kreig Mitchell is moved to ask:

Are the Uncertainties In Our Estate & Gift Tax Laws A Strategy to Stifle Tax Planning?

The uncertainty in the estate and gift tax laws benefit the government. The uncertainty has created apathy and caused a number of affluent taxpayers to put off talking with their estate and tax advisors. The thought is "Why bother planning my estate now when the laws are going to change in a few years?" Similarly, tax advisors are currently less likely to recommend various tax avoidance techniques (due to the irrevocable nature of such techniques) in light of the uncertainties. The net result is fewer affluent taxpayers employing tax avoidance measures. Fewer tax avoidance measures will eventually result in more tax revenues for the government. So is this a strategy to raise tax revenues without politicians having to risk telling taxpayers that they intend to raise taxes?

Stupid or evil? Maybe both!

These issues leave me wondering whether the uncertainty in our estate and gift tax laws is intentional on the part of a small group of lawmakers or if the government inadvertently stumbled on a way to stifle tax planning?

These are very good questions. While cyncicism and expedience were behind the current state of legislation, a plot to prevent tax planning is far too subtle and sophisticated for our Congresscritters.

The death and Phoenix-like rebirth of the estate tax was instead a calculated gamble (or cynical ploy) to attack the estate tax while fitting within some budget rule. Those responsible either assumed that they would be able to permanently remove the tax in subsequent years (this in the era of budget surplus), or that this would keep the issue on the table for years to their own political advantage.

We should know next month whether the estate tax will live, and in what form.

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