More worries for the wealthy? Inheritance tax to jump unless Congress acts
The federal inheritance tax rate will jump to 55 percent in 2013 unless Congress acts. Republicans and Democrats disagree on the best plan. But a stalemate will result in higher inheritance taxes than either party wants.
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As for the Democratic leadership, they are not saying much. In mid-July Senate Majority Leader Harry Reid (D) of Nevada said he did not envision any “big changes” to the estate tax. Under current law, that would indicate the tax would rise on January 1st. House Speaker Nancy Pelosi calls the 2010 renewal of the Bush tax cuts a one-time event in order to get extended unemployment benefits.Skip to next paragraph
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In 2010, when the Congress agreed to the current rate of 35 percent with a $5 million exemption, Republicans also agreed to extended unemployment benefits and more generous provisions for the Child Tax Credit, the Earned Income Tax Credit, and a tax credit to help defray a portion of higher education costs. All of those tax credits expire at the end of this year.
According to the Center on Budget and Policy Priorities (CBPP), if Congress does not renew those credits, a married couple with three children and earnings at the 2013 poverty line of $27,713 will receive $1,934 less in tax credits.
In an analysis, CBPP, a liberal think tank, estimates that extending the current inheritance law would cost the US Treasury an extra $119 billion over the next ten years compared to the Obama proposal. However, within the context of the US budget, it only represents about 1 percent of government receipts, according to a 2008 Congressional Research Service (CRS) report released in 2009 by WikiLeaks.
Nevertheless, all of those billions would flow “to the heirs of the wealthiest three out of every 1,000 people who die, since those are the only estates that would owe any estate tax under the 2009 rules,” says the CBPP.
Republicans view it differently. According to Sen. Hatch, it would result in 24 times more farming estates hit by the death tax, 13 times more small businesses, and 15 times more taxable estates.
Despite the increase in rhetoric, Joe Rosenberg, a research associate at the Urban Institute-Brookings Tax Policy Center in Washington, doubts Congress will do anything before the election. In fact, since estates take so long to settle, he says Congress could actually set the rate retroactively in 2013. “I doubt the exemption level will stay at $1 million,” he says.
Mr. Rosenberg adds, “This will be a boon to estate lawyers and planners. I don’t know how big a concern it will be to ordinary persons.”