South-Western College Publishing - Economics  
Death to the "Death Tax"?
Topic Taxes, Spending, and Deficits
Key Words Taxes, Estate Tax, and Death Tax
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Reference ID: A147362124

News Story When a person dies, all of the property and assets they leave behind are called an estate. The estate must be evaluated and (possibly) taxed before the property and assets are transferred to the deceased's heirs. Current tax codes allow an exemption for estates valued at less than $600,000 and for transfers between spouses. For estates over 600,000, assets are taxed at a rate of 46 percent. President Bush and other Republican leaders wish to completely repeal the tax. Referring to it as the "death tax," they portray it as an unfair burden on small business owners and farmers who want to transfer the fruits of their life's work on to their children.

"I've never thought that every trip to the undertaker should be accompanied by a trip by the I.R.S. to your family," said Republican Whip Representative Roy Blunt of Missouri. "Do I have to sell the corner grocery store or the service station, just to pay the inheritance tax?"

Democrats respond that less than 1 percent of estates are subject to any tax and that a further rollback would benefit only the very richest of families while increasing the federal deficit because of lost tax revenues. "This Congress has bent over backward to take care of the wealthy, the strong," said Democratic Representative Stephen Neal of Massachusetts. "Who do we neglect? The people who do the menial work".

Senate Republicans concede they cannot line up enough votes to pass a full repeal of the estate tax, but are hoping to pass a compromise measure before July 4th. The compromise bill would eliminate the estate tax for any estate worth less than $5 million - $10 million for estates owned by couples. Although the compromise bill falls short of repeal, it will eliminate the death tax for abut 99.7 percent of all families and reduce the tax rates on those families who still have to pay the tax.

Discussion Questions:
1. Write a paragraph to state your position on the inheritance tax. How would you vote on this tax?
2. Proposed question: visit and review the democratic position on increasing the deficit if the death tax is eliminated. Make special note of lost revenues and additional costs of the repeal.
Multiple Choice/True False Questions:
1. The "death tax" does not apply to the spouse of the deceased person.
  1. T
  2. F
2. The compromise bill discussed in the article will eliminate estate taxes for most Americans, but increase the tax on those still facing an inheritance tax.
  1. T
  2. F
Source Edmund Andrews, "House Votes to Sharply Curtail Estate Tax", The New York Times Online, June 23, 2006.
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