Friday, December 04, 2009

Death and taxes, together again (updated) 

One of the odd parts of the Bush tax cuts was that for 2010 there would be no estate tax. Republicans hoped to make that permanent, but 2008 pretty much killed that idea. So it came as no surprise yesterday that the House voted to make the current 2009 estate tax rate permanent.

The bill passed 225 to 200, with 26 Democrats joining all Republicans present in voting no. If Congress does not act, the estate tax will disappear in 2010, then return in 2011 under the higher rates -- 55 percent and a $1 million exemption -- that existed before President George W. Bush took office.

The tax is one of several bills and expiring laws that require attention from Congress by Dec. 31, even as the Senate expects to devote much of its time to the marathon health-care debate.

The Senate may decide to just patch it over for one year at the 2009 rate, leaving the threat of the higher rate and lower exemption hanging into next year. Republicans might like to have that as a campaign plank, but I can't remember when I last saw a tea party for the estate tax.

Nonetheless, this is a pretty big deal. 23% 0.23% of estates are taxed according to the article, and since there's no indexation that number would go up over time. (See below for update.) If Congress allows the tax provision to expire and does nothing, many more would come under the lower $1 million exemption. If the Senate does nothing with this bill passed by the House, there may be a few life-and-death decisions later this month that will have tax considerations in play.

The Obama Administration supported the House bill at the beginning of this year. Someone in the White House press corps should ask Press Secretary Gibbs whether they still do and if they would like the Senate to take up the estate tax bill before finishing with the health care bill.

UPDATE: Well, that was bad! I missed the decimal in front of the 23 in the Post article. For the current year, the share of filers affected would be 0.23%. But a federal report from earlier this year shows that the number would rise to 2.5% of all returns, including 10% of farms, if we revert to the 2001 rates. About 3% of farms currently have assets over $3.5 million.

Thanks to Charlie Quimby for finding my mistake.

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