US Democrats Discuss Estate Tax Options

by Leroy Baker, Tax-News.com, New York

20 November 2009

Senior Democrats on the House of Representatives Ways and Means Committee have been discussing proposals to even out estate tax law by permanently fixing the rate and exemption levels.

As a result of a tax cut package enacted under the previous Bush administration in 2001, the estate tax rate has been steadily decreasing while the exemption threshold has been increasing. Currently estate tax is levied at 45% above a USD3.5m exemption level for individuals and USD7m for couples. However, for the 2010 tax year, the estate tax is due to be repealed – but only for that one year. In 2011, the tax is due to be restored to its pre-2001 levels with an exemption of USD1m, a 55% rate, and a 5% surtax on large estates.

In a recent closed-door session, Democrats explored a proposal offered by House Majority Leader Steny Hoyer that would postpone the scheduled one-year repeal of the tax. The possibility of permanently fixing the estate tax, possibly at its 2009 levels, would then be debated by Congress next year when several other of President Bush's temporary tax cuts come up for renewal.

This is a solution supported by President Obama, who has made room for such an eventuality in his 2010 budget blueprint. However, with unemployment as high as it is, it may be difficult to persuade many Democrats to support what effectively amounts to a permanent tax cut for a few thousand of America's wealthiest families. Moreover, fiscally conservative Democrats would find the loss of future tax revenues hard to stomach.

According to the Congressional Joint Committee on Taxation, just 9,600 US estates will be subject to the estate tax in 2009. This number will jump to an estimated 62,000 in 2011.

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