NB: This article was published on November 1, 2010 and contains information that may be outdated. For current information regarding the estate tax, read: Estate Tax Certainty…For Now.
Halloween has come and gone, but estate tax monster still lurks. If Congress does not pass new estate tax legislation this year, estates valued at over $1 million will be subject to taxes of up to 55 percent starting on January 1, 2011.
And according to Cynthia Lummis, the possible reinstatement of the estate tax has some so worried that they are choosing to prematurely end their lives before year end. The Wyoming representative told reporters that children of individuals contemplating death to escape taxes told her of their parents’ decision. She explained:
“If you have spent your whole life building a ranch, and you wanted to pass your estate on to your children, and you were 88-years-old and on dialysis, and the only thing that was keeping you alive was that dialysis, you might make that same decision.”
Whether or not these individuals follow through with their plans, this story highlights the fear and uncertainty caused by Congress’ failure to address the estate tax this year. Last year, few people believed that Congress would let the estate tax expire. And when it did, most expected that Congress would act quickly to revive it, possibly making it retroactive to January 1, 2010. That hasn’t happened leaving many pessimistic that a consensus can be reached by the end of the year.
This is especially so in light of tomorrow’s mid-term elections, in which Republicans are expected to make significant gains. President Obama and most Democrats wants to extend last year’s exemption amount and tax rate, which allowed a single person to transfer $3.5 million without any estate tax liability.
Republicans, however, want to increase the exemption amount to $5 million and reduce the tax rate to 35 percent or repeal the estate tax permanently. And some Democrats want to do the same. Last week, the American Family Business Institute announced that 500 Congressional candidates from both parties have signed a pledge vowing to fight for a permanent repeal of the federal estate tax.
The good news is that both politicians on both sides of the political spectrum seem to agree that a $1 million exemption is too onerous. In 2009, only 5,500 estates were large enough to incur any estate tax liability. If the exemption amount were at $1 million, more than 44,000 would face estate taxes, according to estimates by the Urban-Brookings Tax Policy Center.
Unfortunately, that seems to be the only thing they agree on. Members of Congress have tried unsuccessfully for more than 10 months to reach a consensus on the estate tax. And the chances of them doing so by year end are looking bleak.