As December 31 reoccured, so did the federal estate tax – or at least for the time being. The estate tax, or the “death tax” as it is more passionately understood, is a tax troubled the property and possessions (i.e. “the estate”) that a private leaves behind at death. Under 2009 rates, the first $3.5 million of the estate was exempt from the tax while any quantity over this was taxed at 45 percent.
In spite of last minute efforts by crucial members of your home of Representatives, an expense that would have reinstated the federal estate tax completely at 2009 rates did not pass the Senate. In fact, HR 4154 never made it past the very first reading in the Senate, where the focus for the last month has actually been on passing the healthcare reform costs. As an outcome, the estate tax was rescinded effective January 1, 2010.
However, if action is not required to make the repeal long-term or to set a new estate tax rate and exemption level by December 31, 2010, the estate tax will return to pre-2001 levels in 2011, which would mean a $1 million exemption and 55 percent estate tax.
The existing repeal of the estate tax comes from legislation passed during former President George W. Bush’s very first term in office. Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), over the past 10 years the federal estate tax has been scaled down. Lots of analysts believed Congress would take action well in advance of the December 31 due date to conserve the tax, however the legislation kept getting pushed behind higher concern costs.
Congress Assures Action
The estate tax has long been evaluated as controversial – both by those wanting to save it and those who desire to make it go away. Republican politicians have been traditionally opposed to the tax. They argue the estate tax is a double-tax, since the properties are taxed as soon as throughout the individual’s life time and then once again at death.
Democrats, on the other hand, explain that the tax just impacts the most affluent of Americans, with less than one percent of estates paying the tax in 2009. They also argue that the tax is crucial to the federal government, which netted $25 billion last year from estate taxes alone.
The issue, nevertheless, is not divided cleanly down party lines. Some crucial Democrats in the Senate have signed up with Republicans in opposition to the tax. While these members do not support an irreversible repeal of the estate tax, they favor decreasing the federal tax rate to 35 percent and increasing the exemption level to $5 million.
Some hypothesize that this department in between House and Senate Democrats might make it difficult to pass temporary legislation to bring the tax back in 2010. Others, however, think that Congress will be successful in passing some momentary legislation to reinstate the tax for 2010.