Remember the estate tax? We used to have an estate tax, way back in 2009. Depending on your political persuasion, you may know it better as the death tax. Strictly speaking it’s not a tax on deaths or on estates: it’s a tax on transfers of wealth at death to noncharitable beneficiaries other than a spouse. Whatever you like to call it, it’s currently in play.
You may recall that the tax expired at the end of 2009, an event that ironically causes more people to pay increased tax than decreased tax. That’s because the number of people who benefit from elimination of the estate tax is smaller than the number of people who lose out from a less generous basis adjustment rule. The basis adjustment rule is what typically allows you to sell inherited assets without reporting a capital gain even if the decedent bought the assets at a low price.
But that’s not the reason Congress is working on this issue. The same law that did away with the estate tax as of 2010 decrees that it returns in 2011, with higher tax rates and a smaller exemption amount than we became accustomed to in recent years. In 2009 the top rate was 45% and the exemption amount was $3.5 million. These would go to 55% and $1 million if Congress fails to act.
So that’s why we’re currently seeing biparmesan, er, bicartesian . . . sorry, can’t seem to type that word . . . let’s just say talks between Senate Democrats and Republicans, on this issue. Actually we aren’t seeing the talks, or hearing them, but we’re told they’re happening. The question is whether they’re actually getting anywhere. And the answer is, it isn’t clear.
Two days ago John Kyl, leading the effort for the Republicans, announced he’d reached agreement with Democrat Max Baucus on five and thirty-five, that is, an exemption amount of $5 million and a top rate of 35%. But yesterday Baucus said there was no deal. Apparently five and thirty-five works for Baucus but not for the caucus, as other Democrats insist on a return to the 2009 figures of $3.5 million and 45%. As far as we can tell, that leaves us in the same stalemate that prevented Congress from acting before the end of 2009 to prevent the one-year expiration of the tax.
So that’s what we have to report: effort but no results. Without agreement on the key issues of tax rate and exemption amount, we can’t even begin to ponder other questions such as portability of the exemption. But at least they’re talking.
