Not what it seems to be

For the heirs of a trucking company owner, estate taxes can be a huge problem. With millions of dollars potentially tied up in assets, the next generation might have to sell the company or liquidate assets to give Uncle Sam his share – up to 55 percent of the estate after exemptions.

Although relatively few Americans face overwhelming inheritance taxes, opponents of the death tax say that’s not the point. If someone works all his life to build a nest egg for himself and his family, it seems unfair for the government to take half of it at death. The death tax is particularly rough on estates built on businesses like typical trucking companies – high assets and low profits and retained earnings.

So when Congress phased out and repealed estate taxes as part of the $1.35 trillion tax cut, the American Trucking Associations and other business groups cheered. “For too long, the ‘death tax’ has been a threat to the survival of thousands of small, family-built and family-owned trucking companies,” said then-President Walter McCormick, who called the repeal “very important to the trucking industry.” Similarly, the National Federation of Independent Business hailed the repeal as a major victory, saying that its “epic battle on behalf of thousands of family-owned businesses, farms and ranches was won.”

There’s just one catch: Congress didn’t really repeal estate taxes. The law increases the exemption from taxes and lowers maximum tax rates slightly through 2009, but estate taxes don’t disappear until 2010. Then a “sunset” provision – applying to the entire tax cut law – returns estate tax laws in 2011 to those in effect just a couple of months ago. The sunset provision was needed so that the tax cut would comply with certain budgetary rules in the Senate. Supporters of the legislation didn’t have sufficient votes to pass the tax cut in violation of those rules.

To continue the death tax repeal beyond 2010, Congress must approve legislation to do so, and the president must sign it. Already, control of the Senate has changed hands, and no one can predict what might happen in Congress and the White House over the next nine years.

You can’t really blame ATA, NFIB or other death tax opponents for their exuberance, however. They clearly wanted some credit from their constituents for fighting the good fight and achieving a victory. Perhaps more important, these groups wanted to reward their friends in Congress for going even this far. Supporting repeal of the estate tax isn’t always politically easy because it subjects a legislator to criticism that he favors the rich over the middle class. Finally, the temporary repeal represents an important policy statement that opponents of the tax can build on.

Still, the repeal-sunset combination makes for some troubling scenarios. If, for example, it becomes clear that Congress won’t extend the repeal, just imagine how many wealthy individuals might meet with untimely “accidental” deaths in 2010. Those inheriting estates in 2010 are in for a surprise, however, if they don’t understand the new law. Because the government no longer would tax estates, legislators also sharply curtailed, beginning in 2010, favorable tax treatment of capital gains that had softened the blow for heirs under the old tax.

It’s important to realize that little has changed. If you assume that Congress will repeal the death tax once again and do nothing to prepare your estate, you could be hurting your heirs and endangering your trucking company.

Avery Vise is editorial director of Commercial Carrier Journal. E-mail