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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Wednesday, September 1, 2010

Rubin & Robertson: Bring Back the Estate Tax, Retroactive to Jan. 1

Wall Street Journal op-ed, Bring Back the Estate Tax Now, by Robert Rubin (Co-chair, Council on Foreign Relations; former Treasury Secretary) & Julian Robertson (Chair, Tiger Management):

With a host of other issues behind it, Congress is finally turning its attention to the expiring 2001 and 2003 tax cuts. But there is one tax issue that should have long since been addressed: the federal estate tax. That tax expired at the end of last year, and there have been no estate taxes levied this year. If a new estate tax is not enacted as soon as Congress returns from its August recess, this void will continue until the end of the year.

We would recommend continuing 2009's regime, with a top rate of 45% and a $3.5 million individual exemption. Small businesses and family farms can be protected both through the exemption (which is $7 million for a couple) and through special deferred payment rules. ...

An estate tax can provide revenue—with little, if any, adverse supply-side economic impact—to fund deficit reduction, additional public investment or added assistance to those affected by the economic crisis. ... We also share the view that the estate tax is grounded in powerful philosophical underpinnings. Our nation views itself as a meritocracy and a land of opportunity and we have a proud legacy of upward mobility. An estate tax helps us promote this legacy, by avoiding the accumulation of inherited economic—and political—power that is antithetical to this historical vision of our society and to the vitality and dynamism that has contributed so much to our success. ...

By acting immediately, Congress can, at a minimum, solve the revenue problem the lapse has created for the remainder of the year. It could also consider going further by making the change apply from the beginning of this year. ... [I]n the case of the estate tax, presumably nobody's demise was affected in timing by the structuring of our tax laws. And importantly there has been notice—through the president's budget and statements by public officials—that a tax would be enacted earlier this year that would apply to the whole of this year.

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This would give Scotus a great chance to properly address the ex post facto clause of the constitution. Scotus skirted around the issue with the retro application of the alternative minimum tax in 76 with the reasoning to the effect that the changes were just adjustments to the rates.

Posted by: Joe | Sep 1, 2010 2:41:42 PM

The nerve of these two!

Instead of a retro-estate tax, I propose another idea: turn back the clock and tax carried interest in Robertson's hedge funds at income tax rates instead of the lower capital gains tax rates? Hedge fund managers make too much money and the government could use a few extra bucks for social welfare programs. Sound like a familiar argument? Similarly, go back and tax Rubin's Goldman Sachs stock sale at capital gains tax rates instead of the free-be he received as Treasury Secretary.

Every American should be scared and offended by this group's attempt to go back and illegally seize citizen's assets. There is only one way to characterize this argument: utter hypocrisy given their own well documented record of dodging taxes.

Posted by: DPD | Sep 2, 2010 6:18:09 AM

In that article, they stated that, “there has been notice—through the president's budget and statements by public officials—that a (retroactive estate) tax would be enacted earlier this year that would apply to the whole of this year.” Really???

In January and February of this year, Max Baucus, Chairman of the Senate Finance Committee, and Treasury Secretary Timothy Geithner expressed a desire to impose an estate tax retroactive to the start of 2010. But as early as February, Charlie Rangel, Chairman of the tax writing House Ways and Means Committee stated, "I don't like retroactivity, but you never can tell."

When Sander Levin replaced Charlie Rangel as Chairman of the House Ways and Means Committee in March, he indicated that if a retroactive estate tax were put in place, he favored giving taxpayers the choice of complying with current law- no estate tax but a capital gains tax- or whatever Congress eventually passed. According to a March 16th Bloomberg article, “One possibility being considered, (Levin) said, would let heirs choose to pay the capital gains tax that replaced the estate levy if that is more beneficial. “We have to write it so we don’t disrupt estate planning in this country.”

After the Kyle Lincoln estate tax proposal failed to reach the Senate floor in May, Max Baucus signaled that he was moving away from the idea of pure retroactive reinstatement. Although Baucus was perhaps the strongest and most influential proponent of retroactivity in the early part of the year, on July 27th, a BNA Tax and Accounting article quoted him as saying, “Practically speaking, the later that we take up and pass the estate tax law or provision, the more difficult it is to make it retroactive. However, it's possible there could be an election for the executor which would, in effect, make that question moot.”

At the IRS Tax Forum in New York on August 12th, Patrick Leahy, an attorney with the estate and gift tax division in Manhattan, told an audience of tax prepares not to file a Form 706 for 2010 estates, or the estate tax return. According to Web CPA, Leahy said, “If you file a 706 to the IRS Service Center, we will rapidly return it to you because we don’t have a place to put them.”

As the estate tax debate has evolved this year, the majority has concluded that either nothing will be done by Congress, or at the very least, there would be an option for estates in terms of compliance with existing and future law. This was made clear in a July 30th straw poll of estate tax experts in Julie Garber’s Wills and Estate Planning Blog. Only 11% of respondents believed there would be a retroactive estate tax.

If the keystone in the retroactive estate tax argument rests between what public officials have communicated to the public and the expectations of the public, then Congress should follow through with what it has indicated throughout the year: give 2010 estates a choice in estate tax compliance.

Posted by: DPD | Sep 2, 2010 6:37:56 AM

"An estate tax can provide revenue—with little, if any, adverse supply-side economic impact ..." With this throw-away line the authors skip over a host of issues (e.g., raising taxes in a recession). They state that a $7m per couple exemption will avoid any adverse effect on "small businesses." Given that estates also hold the decedent's home, personal investments, etc., only the very, very small businesses will avoid being hit by the tax.

Posted by: daniel | Sep 3, 2010 12:35:56 PM