Sep 19 2008
Bills introduced regarding Federal Estate Tax
Summary: Several bills have recently been introduced in Congress with regards to the federal estate tax. Even though there is little chance these bills will pass during this Congressional session, and the exact level of the future estate tax exemption and rate are unknown, this recent legislation, as well as the position of the presidential candidates, give us a good idea of the future of estate tax reform.
Analysis: With 2010, and the one-year repeal of the estate tax fast approaching, it is expected that Congress will act to establish permanent estate tax reform. Two estate tax bills have been introduced in Congress, one each in the House and Senate.
House Bill: The House bill was introduced by Rep. Jim McDermott (D-WA). It contains the following:
Estate tax exemption of $2 million (indexed for inflation), with reunification of the lifetime exemption and estate tax exemption.
Estate tax rate of 45% for estates between $1.5 and $5 million; 50% for estates between $5 and $10 million; and 55% for estates over $10 million.
Reintroduction of the credit for state death taxes paid and repeal of the deduction for state death taxes paid.
Ability for a surviving spouse to add any unused exemption from deceased spouse (known as spousal exemption portability) to their $2 million exemption.
Senate Bill: The Senate bill was introduced by Sen. Thomas Carper (D-DE) and co-sponsored by Sen. George Voinovich (R-OH) and Sen. Patrick Leahy (D-VT). It contains the following:
Estate tax exemption level of $3.5 million per person, indexed for inflation.
Estate tax rate of 45%.
No reunification of lifetime exemption and estate tax exemption, but with a maximum gift tax rate of 35%.
Change the way credit for gift taxes paid is calculated to gift tax rates in effect at the time of death (as opposed to at the time of the gift).
Positions of the Republican and Democratic presidential candidates:
Sen. John McCain’s (R-AZ) position:
Estate tax exemption level of $5 million per person, indexed for inflation.
Estate tax rate of 15-20%.
Make permanent the current deduction for estate taxes paid to states (rather than restoring the state death tax credit).
No stated position on reunification of lifetime exemption and estate tax exemption.
Sen. Barack Obama’s (D-IL) position:
Estate tax exemption level of $3.5 million per person, indexed for inflation.
Estate tax rate of 45%.
No stated position on state death tax deduction or credit.
No stated position on reunification of lifetime exemption and estate tax exemption.
Reference: For more information, please see H.R. 6499 and S. 3284.
