Gay or Straight, We're All Getting Screwed by the Estate Tax

We all know the old quip about death and taxes. Windsor v. United States, for all the focus on equality and morality, was fundamentally an issue about death and taxes. When Thea Spyer died in 2009, she left her wife, Edith Windsor, her estate. Windsor’s legal status as spouse, however, was not recognized by the federal government, because Section III of DOMA defined marriage as “a legal union between one man and one woman.” This lack of legal recognition forced on Windsor $363,053 in federal estate taxes, a tax some refer to as the “death tax.” Windsor challenged the definition of marriage presented by DOMA, and on Tuesday, June 25, 2013, won a historic Supreme Court ruling.

Yet there is a prior injustice which, in lieu of the Supreme Court’s ruling, many have overlooked: the estate tax, the original impetus for Windsor’s lawsuit. The federal government, after taxing income, property, and goods while the deceased live, unjustly penalizes the descendants by taxing it again after death.

The estate tax is applied to the deceased’s taxable estate, derived after certain exemptions are applied to the gross estate. Only in the case of the surviving spouse is this exemption unlimited. If a descendant is not the spouse of the deceased, they will owe a certain percentage of federal taxes on the non-exempted part of the estate. If a child inherits their parents’ $6 million estate, the first $5 million is exempted from the estate tax, but they owe a tax of $300,000 on the last $1 million. When Windsor claimed her inheritance from Spyer, these taxes applied to the estate, without exemption. Windsor responded by challenging the definition of “marriage” employed by the federal government. While her challenge resulted in victory for same-sex couples, the tax which impelled that challenge still stands.

The federal estate tax remains a fundamental problem in our tax code: a problem that affects children, siblings, relatives, friends, gay individuals, straight individuals — anyone who is not married and finds themselves a survivor of the deceased. That certain exemptions exist does not make this tax, as such, a just tax. If DOMA can be overruled on the basis of justice, even though such an overruling only affects a small minority of citizens, that logic must be carried over to those who stand to inherit an estate valuing more that $5 million, most particularly if they are only a small minority of the population. Justice is a hard line — it is measured by ideals, not statistical quantities.

Sen. John Thune (R-S.D.) and Rep. Kevin Brady (R-Texas), with their  proposal of the Death Tax Repeal Act of 2013, hope to insert that sense of justice into our tax code.

Thune and Brady proposed this act primarily because estates are not comprised only of liquid assets. Inheriting a valuable estate which primarily consists of fixed assets is a dangerous situation for the non-spousal survivor. Brady highlighted this problem when arguing that “the Death Tax remains the number one reason family owned farms and businesses don’t survive to the next generation.” While this bill has been endorsed by traditionally conservative entities, such as the American Farm Bureau Federation, it would positively effect liberals and conservatives alike.

Eventually, some children of same-sex spouses will one day inherit estates exceeding that $5 million mark, and they will join the children of heterosexual spouses in asking the terrifying question upon their parents’ death: How do I save the estate my parents have spent a lifetime building when it consists of fixed assets?

Rep. Kristi Noem (R-S.D.), at age 21, was hit with the brutal force of the death tax when her father died unexpectedly. “I was shocked when I got a bill from the federal government that said because a tragedy happened to my family, I now owed them thousands of dollars. For 10 years I paid on a loan to pay the federal government what I owed them and it made it very difficult for our family business to survive.”

Noem echoes Windsor’s account of her own experience as Spyer’s survivor, which provided the catalyst for her challenge to  DOMA’s definition of marriage. “In the midst of my grief I realized that the federal government was treating us as strangers, and it meant paying a humongous estate tax.”

Death is a tragedy which befalls every family. The federal government insists on compounding that grief by laying further claim to the estate, an estate which was taxed during the deceased’s life. This fiduciary travesty transcends the distinctions of “gay” or “straight.”

Financial success in life should not result in a penalty in death. People spend their lives building an estate that they hope to leave to their families, friends, or anyone else they so choose. The federal government places an excessive burden on the survivors of the deceased when they enforce this death tax. There are legitimate times and places for taxes. Death is not one of them. If the government has decided to respect the individual’s choice in love, let the government respect the individual’s choice in death as well.