Bipartisan Bill Would Slash Estate Taxes
WASHINGTON (TheStreet) -- A tax agreement up for a Senate cloture vote today focuses on income taxes and jobless benefits, but also slashes the top estate tax rate and will significantly reduce the number of taxable estates.
Through the end of this year there is no estate tax, and next year it returns to a $1 million exemption and a top rate of 55%. The current draft of the compromise House bill, HR 4853, though, would increase the estate tax exemption to $5 million and slash the top rate to 35%. It also provides, for the first time, that the exemption will grow with inflation.
Since 2001 the estate tax exemption has increased gradually, to as high as $3.5 million. Most predicted that by now we would have a law extending that amount.
A $5 million exemption will have a huge impact on the number of taxable estates. At a $1 million exemption, about 1% of all estates paid an estate tax. At $3.5 million, that dropped to a quarter of 1%, or about 5,500 taxable returns per year. At $5 million this number will drop even further. According to Ed Beckwith, an attorney with
in Washington, D.C., "This will make the estate tax a levy only on the very rich."
Even more startling, the compromise bill drops the maximum tax rate on estates to 35%. Other than this year -- with the rate at zero -- this is the lowest estate tax rate since the 1930s. With no change in the law, the top rate will go back to 55%, as it was in 2001. That's 20% less.
"The real money is in the rate," Beckwith reports. "The superwealthy don't care about the exemption, they've already given that away. They care about the rate."
Before anyone makes long-term plans, it's worth noting: The compromise agreement is effective for only two years. Once again, if nothing else is passed, in 2013 we will go back to the old $1 million exemption and 55% rate. Nonetheless, it does usher in an era of higher exemptions, indexed to inflation, and at a historically low rate.
-- Reported by William Baldwin in Waltham, Mass.
>To submit a news tip, email:
.
RELATED STORIES:
>>Leaving a Legacy While on a Budget
>>Plan for Illness, Medicaid 'Impoverishment'
Follow TheStreet.com on
and become a fan on
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.