Faced With Lengthening Debate On Health Care, Congress Puts Off Estate Tax Reform.
As I've written before, the Estate Tax, which taxes the estates of the richest taxpayers who die, was set to expire in 2011, due to action taken by the Bush Republican Congress in 2002. Congress could not balance the budget and pass a massive tax cut for wealthy Americans at the same time, so the tax cuts were set to expire by next year. Congress will now have to decide what if anything to do about them by that time or there will be no Estate Tax in 2010, and in 2011 the law will expire and the tax will revert to the way it was in 2001, with a $1 million exemption (estates worth less than $1 million would pay no tax).
Since this would hit lots of middle-class taxpayers who own property in expensive states like California or New York, it was considered virtually certain that Congress will act before then. "Experts and aides say a more realistic scenario involves Congress passing a one-year extension and then tackling the issue as part of broader tax reform next year" reports published in The Hill note. Allowing the tax to expire would provide a wind-fall to the ultra-rich who pay all of the tax under today's rules (the current exemption is $3.5 million and $7 million for a married couple), so allowing the tax to expire would blow another hole in the deficit, which Democratic lawmakers are eager to avoid (the government would lose $19 billion in revenues from allowing the tax to expire).
As with the Health Care Bill, the chief holdup seems to be Sen. Max Baucus, whose committee "hasn’t scheduled when it would consider new estate tax legislation. The panel is busy with the healthcare reform bill, which is likely to occupy the committee until October."
Why Should I Care?
While it is unlikely that Congress will allow the Estate Tax to hit middle class families by letting the law revert to what it was in 2001 (a $1 million exemption), Estate Planners will have to watch and see what develops.
Those with property worth at least $1 million (including real estate) should consider having an expert review your estate plan for tax implications. After all, Congress has screwed up before, and it's possible that there will be continued deadlock between Republicans and Conservatives who insist on a complete repeal of the Estate Tax (despite increasing the deficit), and Democrats who want to see the current rates continue.
One common sense solution that seems unlikely to pass is that proposed by Rep. Mike Thompson (D-Calif.), a Ways and Means Committee member, has proposed excluding family farms and ranches from the estate tax.
“When farms pass from generation to generation, too often families have to sell the farm to developers in order to pay the estate taxes,” Thompson said in a statement. “We need to preserve our farms and open spaces for the next generation.”
This reform would allow (working) family farms and ranches to be excluded from the tax. Combined with setting the tax to exempt estates worth less than $3.5 million would mean no middle-class taxpayers need ever worry about this tax; which is as it should be! The Estate Tax was designed to prevent the build-up of an aristocracy of un-earned wealth and privilege and was NEVER intended to catch middle-class taxpayers because of increases in real estate prices.
Saturday, September 26, 2009
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