Monday, December 31, 2012
As I have previously discussed, members of Congress and the President have made numerous proposals on how the estate tax should change. Even though this one of the items that is making talks difficult in the Senate at the moment, it is important to remember that for the vast number of citizens in this country the outcome of this issue will not affect them at all. According to the Washington Post, "About 99.9% of deaths do not involve people with estates large enough to be taxed." Still, let's examine the scope of the various proposals made by key members of the fiscal cliff talks.
Republicans in Congress would like to the sustain the Bush-era tax cuts and keep the lifetime gift tax exemption and estate tax rate at their current levels. Under this arrangement, the exemption sits at $5 million with the current estate tax at 35%. At these levels, only 3,800 households will likely to be affected by the estate tax.
President Obama would like to decrease the exemption to $3.5 million and increase the tax rate to 45%. Under the President's proposal, 6,500 households will likely be affected by the estate tax.
If not action is taken, the exemption and tax rate will return to their Clinton-era levels of $1 million with a 55% tax on all income that exceeds that amount. At these levels, it is estimated that the tax will affect more than 40 million Americans.
See Zachary A. Goldfarb, The Estate Tax: A Primer, The Washington Post, Dec. 30, 2012.
Special thanks to Joel Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.