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Tax-free Steinbrenner death reignites Senate push for millionaire estate tax
George Steinbrenner, owner of the New York Yankees
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TEXT OF INTERVIEW
Bill Radke: Congress is also paying attention to a quirk in the US tax code, thanks to the death last week of New York Yankees owner George Steinbrenner. Because of a quirk in the tax law, had Steinbrenner passed away last December, his estate would have owed Uncle Sam around $450 million. If he had lived until next year, the tax bill would have gone up to $550 million. But this year, his heirs will not pay a thing. Lots of people would like to change this situation. Joining us live from Washington is Marketplace's John Dimsdale. Good morning, John.
John Dimsdale: Good morning, Bill.
Radke: So what are lawmakers looking to do?
Dimsdale: Well nobody wants to do nothing, because without some sort of change, the estate tax will become very onerous next year -- 55 percent for every estate of just $1 million or more. So that's some kind of action, there's a perverse incentive for millionaires to die this year to save their heirs a lot of money.
Radke: Right. And what's being proposed today?
Dimsdale: Well a group of Democrats wants to make last year's estate tax rate permanent: 45 percent on any family estate worth more than $7 million. That idea is going to get some support today from unions and several wealthy people, including former Goldman Sachs head Robert Rubin and Walt Disney heir Abigail Disney.
Radke: And is that the only idea out there?
Dimsdale: Hah, hardly. Yesterday, Republican Senator Jim DeMint from South Carolina introduced an amendment to do away with what he called the death tax altogether. Liberals jumped on that idea as just a big gift to the rich that would cost the federal Treasury a trillion dollars over 10 years.
Radke: So those sound like pretty different proposals. Is there any hope of a compromise?
Dimsdale: A bipartisan group of senators wants to lower the estate tax rate to 35 percent with a $10 million exemption. But with the very public tax-free death of billionaire George Steinbrenner, there's a push to do something in the Senate before the August recess.
Radke: Marketplace's John Dimsdale. Thanks.
Dimsdale: Thanks, Bill.
I think Mr. Wenker's comments are misleading. The heirs will only pay income tax upon selling the asset; at least the initial reports were that two sons of GS were running the organization, so I don't think they will be selling any time soon, and won't be paying that income tax at the capital gain rate(s).
While the heirs of Mr. Steinbrenner may not have to pay the estate tax, they will have to pay income tax on the difference between the fair market value of his assets versus his asset basis. Under the estate tax rules you get a step-up in basis to fair market value at the date of death and therefore there is no income tax on these assets. However now that the estate tax is gone the step-up in basis is gone and the heirs owe income taxes. While the estate tax will be zero, the income taxes will amount to some number depending upon ordinary income versus capital gains, etc... My point is the heirs will be paying something, though less than the estate taxes, but some number which will be certainly more than zero.
". . .the estate tax will become very onerous next year -- 55 percent for every estate of just $1 million or more."
That's not true, and while many listeners will know that the 55% is a marginal rate, many will think that an estate worth a $1,000,000 will face a $550,000 dollar tax, instead of a $0 tax.
And the 55% only applies to the amount above $3,000,000, not $1,000,000.
