Congress Scrambles to Extend Estate Tax

(AP)  Next year had been shaping up as a great year to get a big inheritance — no federal taxes on it. Congress, however, has other plans for the few wealthy heirs expecting a big boon. Uncle Sam may take a 45 percent cut after all.

Under current law, the federal estate tax is scheduled to temporarily disappear next year before returning in 2011 at an even higher rate. But the House is expected to vote as early as Thursday on a bill that would permanently extend the current top rate of 45 percent on estates larger than $3.5 million.

Estates smaller than $3.5 million would continue to be exempt from the tax, and married couples, with a little estate planning, could exempt a total of $7 million from the tax. That leaves less than 1 percent of all estates subject to the tax this year.

The Senate is considering similar legislation, though senators are busy trying to overhaul health care, meaning they will probably have to scramble to address the estate tax by the end of the year.

House Majority Leader Steny Hoyer, D-Md., said it is important to set a permanent estate tax so rich families and small business owners can plan accordingly. He said exempting estates as large as $3.5 million from the tax will protect all but the wealthiest Americans.

The quirk in the law, in which the estate tax would disappear for only a year, came out of a series of tax cuts enacted in 2001. Many Republicans, who controlled Congress at the time, wanted to permanently repeal the estate tax, but they settled on a gradual reduction, with a one-year repeal, to reduce the impact on the federal budget deficit.

Under current law, the estate tax would return in 2011 with a $1 million exemption and top rate of 55 percent, unless Congress acts.

Permanently extending the tax with a top rate of 45 percent on estates larger than $3.5 million would raise about $14 billion a year. However, it would raise less than current law over the next 10 years — an estimated $234 billion less. The lost revenue would be covered with increased borrowing.

Some Republicans and small business groups want to permanently repeal the estate tax, which they have labeled a "death tax."

"I don't think death in and of itself should be a taxable event," said Rep. Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee. Camp said he is concerned that the $3.5 million exemption would not be indexed for inflation, meaning more and more estates would be subject to the tax in the future.

Currently, the tax affects few estates. In 2009, about 5,500 estates will be subject to the tax, according to projections from the Tax Policy Center, a Washington think tank. That's 0.23 percent of all estates.

Nevertheless, the issue has gained political traction.

Some opponents simply don't know how few people get hit by the tax, said Roberton Williams, a senior fellow at the Tax Policy Center. "The only thing I can figure is, they think they're going to hit the lottery, and they don't want to be hit" by the tax.

Dick Patten, president of the American Family Business Institute, an organization formed to fight the estate tax, said the tax hits small businesses with a lot of expensive equipment.

"If you've got a smaller business that's much more service oriented, $3.5 million probably allows you to escape under the line," Patten said. "But if you have any kind of business that requires capital, then this puts your business at risk."

[anti-global3]

what makes some people feel they are entitled to other people's money and property? In the past that was called stealing.

[quapawsix]

There was only one rich person that I know of that donated all of his wealth to charity and his name was Andrew Carnegie and his reason was no one should inherit wealth they should have to work to get it.

[quapawsix]

Same right the 1% have to steal from the poor through over inflated prices.

by ALBrainTrust10 December 1, 2009 11:42 PM EST
WHAT RIGHT DO THE 99% HAVE TO TAKE ALMOST 50% FROM THE 1%?

[ALBrainTrust10]

WHAT RIGHT DO THE 99% HAVE TO TAKE ALMOST 50% FROM THE 1%?

[anti-global3]

In truth, what right does the 1% have to amass and continue to hold that wealth past their demise? Why should their sperm have right to the toil of the head and hands?
---------------------------------------------------------------
That is the most stupid question I have heard in quite a while. I'll tell you why, their fathers and grandfathers worked hard to amass enough wealth so the future generations would be well taken care of. I guarentee you if these past generations were told no matter how hard you work and save once you die we will take your wealth and redistribute it to less productive people who are not your family our fathers and grandfathers would not have worked near as hard and this country would never have achieved what we have.
Why would someone sacrifice and work hard just to have their wealth go to strangers, especially when it is strangers who are either lazy, ignorant or both. If you don't contribute and produce you don't deserve anything. You are sucking up valuable resources and are giving nothing back, in other words you are stealing.
We are not in this together, if we were I would leave work at noon everyday and those that live off of my tax dollars could work the second half of my day so I could enjoy more free time.

[androidboy]

Don't think death should be a taxable event? How about the transfer of multimillion dollar assets? Is that taxable?
I would like to point out to certain elements *republicans* that the rich man seems to have a dirty spot on his *****...there ya go. You got it all clean with your tongue.

[bc-1948]

If a "small business" would get hit with estate tax, then there was poor planning. I doubt many businesses with more than 3.5M equity value are operating as sole proprietorships

[bc-1948]

If it puts the "small business" at risk, then there is poor planning.

I doubt if many businesses with equity valued at more than 3.5M are operating as sole proprietorships.

[jasperrdm]

I have to disagree. One of my coworkers is trying to get land to open a fixed location for her restaurant. Currently she works out a food trailer, the kind you see a kids baseball games and small locate events. Land which have empty restaurant on it starts $250k (at a bad location) up to 1.25 mill (location near newest movie house) before the cost of building. Her trailer has cost $98k so it is possible to have equity that high. During the late 70s my parents had enough equity between our 2 houses and the money mom had saved; to come under the death tax. Since she hated dealing with the bad renters she sold our old home. It always made me wonder, my parents work hard to save, teach me to save, and if they kick off with too much money, the government says great job now give it to me?