Estate Tax Update

Jonathan D. Salant writing for Business Week has a good article on the current situation on the estate tax.  There are some very interesting political issues and maneuvering involved with when and if a new law is enacted.  One, if no changes are made, 2011 will see an estate tax rate at 55% with an exemption level of only $2 million per married couple.  If that remains and a new law is not enacted the article states the government will generate an additional $34 billion in 2011 revenue and about $410 billion through 2019. With such large deficits, I am sure that income is enticing to Washington, although many dont beleive that will happen or come to fruition.

At the end of 2009 the House passed a bill for the tax rate to go to 45% with an exemption of $7 million per couple, but the bill was not reconcilled with the Senate.  The Senate has yet to act, but many beleive a 35% tax rate may be on the horizon.  The Senate is currently looking at a bill which would include a 35% tax rate and $10 million exemption, this is being sponsored by Arizona Republican Senator Jon Kyl and Arkansas Democratic Senator Blanche Lincoln, and would also make the law retro active for to January 1, 2010.

The article is a good overview and update on what is happening with the estate tax rate and exemptions, such as political maneuvering, timing issues, and partisan interests. Unfortunately, all are coming into play for the passage of a new estate taz law. I recommend all appraisers read the article.

The article states

A 35 percent rate “is really that sort of sweet spot of what’s acceptable to all sides,” said Dena Battle, director of tax policy for Washington-based National Association of Manufacturers. “We don’t want to see the tax go up to 55. We didn’t want to see the tax at 45.”

The longer Congress delays action, bringing a 55 percent tax closer to reality, the fewer reasons Democrats have to consider Kyl’s and Lincoln’s 35 percent alternative, said Jeff Shoaf, senior executive director for government affairs at Arlington, Virginia-based Associated General Contractors.

Senate Majority Leader Harry Reid, a Nevada Democrat, is “very reluctant to bring this up at this point,” Shoaf said. “The closer we get to the deadline, the stronger his hand is.”

Leverage Waning

Estate-tax opponents “had leverage” in the policy debate when Democratic leaders were trying to keep the tax from disappearing at the beginning of the year, said Chuck Marr, director of federal tax policy for the Center on Budget and Policy Priorities, a nonpartisan Washington research group. “That will wane as the year goes on.”

On the other hand, Democrats have some incentive to act soon because, as more time passes, it becomes harder to reinstate the tax retroactively for 2010, Becchi said. The plan backed by Kyl and Lincoln would raise $9 billion this year, according to the Tax Policy Center. A 45 percent tax would bring in about $15 billion.

To read the full Business Week article, click HERE.