Time Traveling to Strangle Strangi (and Kill the Monster Again), Part 3

Abstract

The author completes a three-part article by proposing the unification of the estate tax. In the first part of the article (Tax Notes, Aug. 13, 2007, p. 563, Doc 2007-16741, or 2007 TNT 157-32), the author criticized Strangi and other recent decisions including certain partnership interests in the deceased owner's estate using section 2036. Part 2 (Tax Notes, Aug. 20, 2007, p. 657, Doc 2007-16792, or 2007 TNT 162-29) proposed that Congress repeal section 2036 and the other estate tax strings sections and replace estate inclusion with an easy to complete gift rule that would be fairer and generate tax revenue. Part 3 spends some of that revenue by proposing that the computation of the federal estate tax be changed so that it is computed net of all death taxes.

The author advocates this change for three reasons: (1) the change would cut effective estate tax rates without changing the current 45 percent rate, (2) it would eliminate the unfairness of double death taxation, and (3) it would unify the transfer tax, meaning that the gift and estate taxes would be imposed in the same way. The author takes on common misunderstandings to justify this change, including explaining why in more than half the states, the federal estate tax rate has not been cut but it actually increased by 6 percent. He also argues that fairness should be the primary objective of an estate tax compromise and that any proposed estate tax change needs to be considered in light of its revenue cost.

The author concludes that increasing the estate exemption or providing multiple estate tax rates both fail this fairness-cost analysis. Instead of increasing the estate tax exemption for everyone, the author proposes benefits targeted to small business owners, farmers, and ranchers.