As December 31 came and went, so did the federal estate tax – or at least for the time being. The estate tax, or the “death tax” as it is more affectionately known, is a tax imposed on the property and possessions (i.e. “the estate”) that a private leaves behind at death. Under 2009 rates, the very first $3.5 million of the estate was exempt from the tax while any amount over this was taxed at 45 percent.
In spite of last minute efforts by key members of the House of Representatives, a costs that would have restored the federal estate tax completely at 2009 rates did not pass the Senate. In reality, HR 4154 never ever made it past the very first reading in the Senate, where the focus for the last month has been on passing the health care reform costs. As a result, the estate tax was repealed reliable January 1, 2010.
However, if action is not required to make the repeal permanent or to set a brand-new estate tax rate and exemption level by December 31, 2010, the estate tax will go back to pre-2001 levels in 2011, which would imply a $1 million exemption and 55 percent estate tax.
The present repeal of the estate tax comes from legislation passed during previous President George W. Bush’s very first term in office. Under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), over the previous ten years the federal estate tax has actually been scaled down. Many analysts thought Congress would act well in advance of the December 31 deadline to save the tax, however the legislation kept getting pressed behind greater priority costs.
Congress Promises Action
The estate tax has actually long been examined as controversial – both by those wishing to save it and those who desire to make it go away. Republican politicians have actually been typically opposed to the tax. They argue the estate tax is a double-tax, since the possessions are taxed once throughout the individual’s lifetime and then again at death.
Democrats, on the other hand, point out that the tax only affects the wealthiest of Americans, with less than one percent of estates paying the tax in 2009. They also argue that the tax is essential to the federal government, which netted $25 billion in 2015 from estate taxes alone.
The issue, however, is not divided easily down celebration lines. Some key Democrats in the Senate have actually 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 division in between House and Senate Democrats might make it difficult to pass short-term legislation to bring the tax back in 2010. Others, however, believe that Congress will achieve success in passing some short-term legislation to restore the tax for 2010.