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US Lawmakers Approve Estate Tax Relief Bill

by Mike Godfrey,, Washington

07 December 2009

According to US Congressman Earl Pomeroy (D - SD) nearly every family, farmer and small business in America will be exempt from paying any estate tax under a bill passed by the House of Representatives on December 3.

The Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 (HR 4154), authored by Pomeroy, would make permanent the 2009 estate tax exemption level of USD3.5m for an individual (USD7m for a married couple) and a maximum tax rate of 45%. The bill also maintains the so-called “step-up in basis” tax rules, which protect many heirs from paying additional capital gains taxes on inherited assets.

The bill was approved by 225 votes to 200, but must be passed by the Senate and signed by President Obama before it can become law.

“It is time to bring certainty to the estate tax so families across the country can properly plan for their estates. By making the 2009 estate tax level permanent we are addressing the uncertainty of not just next year, but of the years to follow,” Pomeroy commented following the vote.

“This bill provides the certainty families need to make long-term decisions and avoid the estate planning roller coaster that will result from current law," he added.

For calendar year 2009, the estate tax exemption amount is USD3.5m (USD7m total for a married couple) and the maximum tax rate on estates is 45%. Pomeroy's bill would permanently extend this estate tax exemption amount and tax rate.

Without change, the estate tax is scheduled to enter one year of full repeal in 2010 followed by a return of the estate tax in 2011 with much lower exemption amount (USD1m) and a much higher maximum tax rate (55%).

The one year of estate tax repeal was also coupled with the enactment of so-called “carryover basis” tax rules, which will require heirs in 2010 to pay capital gains taxes on inherited assets based on the decedent’s original purchase price.

Under the step-up in basis rules, continued under Pomeroy's bill, the value of the asset is calculated at the time of the decedent’s death. It is claimed that preserving the step-up in basis rules will protect small businesses from paying an estimated USD34bn in capital gains taxes.

According to the United States Department of Agriculture’s Economic Research Service, the continuation of the USD7m exemption for couples will help the vast majority of family farmers, as the average farm household's net worth ranged from USD586,000 for small farms to USD2.2m for very large farms in 2008.

Furthermore, a Center on Budget and Policy Priorities analysis suggests that only 100 small business and farm estates would owe any estate tax in 2010 if the 2009 rules were extended.

“By making the 2009 estate tax level permanent, we will make the estate tax go away for 99.75% of all percent of families, farmers, and small businesses in this country," Pomeroy observed, concluding that: "It’s time to resolve this issue once and for all, and this bill is the fair way to do it.”

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