It is well-known that the Federal estate tax is one of the most hated taxes in America. I have spoken at a number of seminars on matters involving estate taxes, and nothing irks the average Joe like the thought that all of the possessions that they work hard for all their lives (and paid income taxes on) could be subject to confiscatory tax rates at death. And fact that the average Joe isn’t subject to the estate tax doesn’t seem to curb the antipathy. Americans simply hate the death tax.
If you have even a passing interest in taxes or estate planning and have been half-conscious this year, you know that the Federal estate tax has been repealed for 2010 only and will come back in 2011 with an exemption amount of $1 million and estate tax rates of up to 55 percent. Much of the discussion this year has centered on whether this will be a permanent situation or whether Congress will raise the exemption to a higher amount ($3.5 million and $5 million seem to be the most popular proposals).
But the past few months have seen a surge of discussion about permanent estate tax repeal, a proposition that is starting to gain traction. The American Family Business Institute has published a petition for permanent repeal (with a bunch of good stuff about estate tax policy) as well as a Pledge for members of Congress to sign. From my conversation yesterday with Palmer Shoening, a Tax Policy Analyst and Coalitions Manager for the AFBI, the Congressional Pledge now has 501 signatories, including:
- 266 primary winners
- 27 Senate Candidates
- 239 House Candidates
- 57 incumbents
Notwithstanding this recent surge, permanent estate tax repeal will continue to be an uphill battle. And the push for full repeal is being met with the usual resistance. For example, a recent article by the Wonk Room, published by the Center for American Progress Action Fund, challenges the premises behind the arguments for estate tax repeal, pointing out that only 0.6 percent of deaths in 2009 (when the Federal exemption amount was $3.5 million) were subject to the estate tax. And since permanent estate tax repeal would cost an estimated $784 billion in taxes over the next 10 years, progressive and liberal policymakers argue that there is no sound reason to deviate from 2009 law.
Given that Congress was unable to permanently repeal the estate tax when Republican control was at a peak, I don’t think that full estate tax repeal is likely. But even if the push for estate tax repeal is ultimately unsuccessful, it is still good news for upper middle-class taxpayers who are looking at a $1 million exemption in 2011 under current law. As the Wall Street Journal recently reported, the renewed interest in estate tax repeal could pressure legislators to move toward a higher exemption. This will provide much-needed relief for taxpayers with moderate estates.
So the good news is (a) that estate tax repeal debate is back on the radar and (b) neither side of the debate seems to be counting on the law remaining the same as it is scheduled to be reinstated in 2011. Given that we are in a worst-case-scenario on January 1 of next year, either full repeal or a higher exemption would be an improvement. But until Congress acts, taxpayers are well-advised to stick to sound but flexible estate planning techniques to minimize potential estate tax liability.
About Jeramie Fortenberry
