Lets set emotion aside for a second. Do you think this is fair? What about the principle of equal protection? How is the death tax more of a burden for the families of 911 victims than anyone else?
WSJ
The Widows Triumph
Ever have one of those days where you roll out of
bed, gulp your black coffee and pump yourself up
for the big fight you know is coming? Well, with the
Internal Revenue Service preparing to pursue the
taxable estates of foreigners who lost their spouses
on September 11, we were ready to rumble.
And then Congress surprised us, and probably even
itself, and did the right thing.
The surprise is the Victims of Terrorism Tax Relief
Act, and actually it wasn't totally the right thing. But
we'll get back to that below. As these columns first
reported when we wrote about the case of Lucy
Thompson on October 12, U.S. estate-tax law lacks a spousal exemption for foreigners. This made
widows and orphans juicy targets for the IRS to pounce on whatever cash and assets the victims of
September 11 had left them. If the numbers add up the way we've been told, Congress has now
granted them a reprieve.
Congress did this by extending to those who were killed on September 11 the same special tax
treatment granted to soldiers who fall in the line of duty. Though not designed with the foreign widows
and widowers in mind, these people have nonetheless received a huge assist. That's because the new
law grants the special tax status to the estate of the deceased, so the spousal exemption doesn't really
matter.
The math is extremely complicated, and involves tax treaties with different countries. But we're told it
works out to shielding the first $8.5 million from federal tax in the absolute best cases (for those
foreigners living here) to $600,000 in the worst (those nonresident). Even in the worst case, that is 10
times the protection they would have received otherwise, with much lower tax rates. As such it brings a
special measure of mercy for the hundreds of foreign families who lost loved ones on September 11,
including 53 British, 24 Japanese, 17 Mexicans, 18 Koreans and many dozens of others who still have
mortgages and college tuitions to pay as they try to keep their families together.
Of course, the simplest and more humane solution would have been to abolish the estate tax, which is
scheduled for extinction anyway, though not before 2010 and then for one year. That's precisely what
Washington Representative Jennifer Dunn proposed in her Widows of the World Equity Act.
But that would have required more compassion than politicians can muster at one sitting. In fact,
Congress seemed ready to consider any kind of relief, including making all of the dead U.S. citizens,
rather than repeal the estate tax. And before we praise the Members of Congress too much, no doubt
the fear of special publicity that would have focused on the September 11 widows was part of their
motivation.
Then there is the twisted moral logic of carving out just this estate-tax exception. A British woman living
in America whose husband was killed in the World Trade Center attacks can now collect whatever
was left behind without fear of the IRS. But a British woman whose husband is killed by, say, a drunk
driver or heart attack still faces an estate tax on her assets starting at as little as $60,000 (foreigners
don't get the U.S. minimum exemption of $1 million) with confiscatory rates of up to 55%. The IRS
philosophy here is that it's all their money, and that a foreign spouse might up and leave the country
before the IRS gets its share.
The case of the September 11 widows illuminates that the real objection to the estate tax is moral. It is
a political grab for assets on which taxes have already been paid once, if not twice. The spouses of
September 11 may be catching a deserved break, but the real solution is to abolish the estate tax for
everyone forever. |
