The feared provisions—a 55 percent rate on estates valued at more than $1 million for individuals and $2 million for couples—were set for automatic return next year.
Now, as part of the proposed two year extension of the Bush tax cuts and the extended unemployment benefits, estate tax payers face a rate of 35 percent with an exemption up to $5 million.
The proposal also lets survivors combine their exemption with that of a spouse who has died, for a total exemption of $10 million—almost guaranteeting they would not pay.
“The best part of this plan is that it’s better than the 2011 provisions,” says Ryan Ellis, tax policy director at the conservative Americans for Tax Reform. “But it’s worse than 2010 when there was no estate tax. Thirty-five percent will become the new normal, I hope, and we can work to get the rate down from there. This will help the economy with keeping more money in the hands of people.”
An estimated 40,000 of the largest estates will skip the estate tax under the new rates, leaving only around 3,500 estates that will owe Uncle Sam. One analyst says that’s too much lost tax revenue in a struggling economy.
“The estate tax is a fairly small revenue generator, but it’s $300 billion over ten years that’s lost with these new rates,” says Benjamin Harris, a senior research associate at the Brookings Institute. “Those are taxes that have to be made up elsewhere or we’ll have even more deficits. There are also better ways to stimulate the economy, then cutting taxes for the rich.”
Estate tax reform for 2011 has been slow to develop. Republicans and Democrats talked compromise on provisions through much of the year and several proposals were made before the November midterm elections—but to no end until now.
“I never thought it would get to this point. It’s stunning really, what Congress has failed to do to fix this,” says Eric Green, an estate tax attorney and partner at Convicer, Percy & Green, in Glastonbury, Connecticut.
“With this being only a two-year plan, it is hard to advise clients for the future,” Mason adds. “It’s conceivable that if the Republicans win the White House and Congress in 2012, they would repeal the estate tax completely. But there’s no guarantee that will happen.”
“It’s weirdly amusing to say but it’s like the late New York Yankee owner George Steinbrenner,” says Green. “If you had to pay the estate tax and you had to die, this was the year.”