The topic of the Presidential Debate on Wednesday was the domestic economy. The umbrella was supposed to contain such issues as taxes, Medicaid/Medicare, healthcare costs, financial regulation, and jobs. And we heard a considerable amount from each candidate on these topics. Among this hemming and hawing however, one conversation was noticeably missing, at least for me—who was listening for it.
The Federal Estate Tax
Unless acted upon by Congress, the Bush era tax cuts are set to expire on January 1, 2013. One affected tax is the Federal Estate Tax (labeled, the “Death Tax” by Republicans). Currently, this tax has an exemption amount of $5.12 million per individual, and $10.25 million per married couple. Meaning, that for estates with values below that amount, no federal taxes are payable at death. For estates above that amount, a 35% tax rate kicks in. This is the most favorable estate tax situation for Americans in the last 50 years.
If left to expire, the tax situation next year will be drastically different. It’s a double whammy. First, the tax exemption amounts will be reduced from the $5.12 ($10.25) million level, to just $1 million for individuals and $2 million for married couples. That’s significant considering the number of estates in this county that include real estate, investments, life insurance, and the like. The result is that 10 times the number of individuals in America would be reached by the tax. Second, for estates that are reached, the tax rate will increase from 35% to 55%. That’s right, 55%! Families with wealth tied up in land, like Whatcom County farmers, could be particularly hard hit—requiring families to sell land just to pay the tax.
There has been rampant speculation as to what will happen when the present law expires. President Obama has said that he expects Congress will act, and would like the tax exemption set at $3.5 million, with a rate of 45%. Governor Romney suggests eliminating the tax in its entirety. Regardless of how this ends up, a few things are clear. One, this tax has the potential for significantly affecting a large number of Americans families, and Two; the situation currently is far from certain. It would have been nice for the gentlemen on stage to address it.
Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.
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