Tuesday, December 18, 2012

Whither the Estate Tax?

The President and the Republicans may be nearing a deal to avert a plunge off the fiscal cliff. Any guesses about what next year's federal estate tax will look like? The President has proposed a $3.5 million exemption and a 45 percent tax rate.

Republicans, if they can't have no death tax at all, want a higher exemption and a lower tax rate. So do some Democrats, especially from farm states. Although housing prices slumped and in some places crashed during the Great Recession, agricultural land prices have kept rising. "Land selling for $1,000 an acre five years ago may now be worth five or 10 times that amount," notes The Modesto Bee.

Most recent support for a much harsher estate tax comes from a group of rich business notables. They see our nation's fiscal instability as a greater threat to wealth than taxation.

Actually, billionaires don't have to worry much about estate tax, unless they own one of the very largest family businesses. Usually a $4-billion family can get along just fine on $2 billion.

For background, see this history of the federal estate tax. One table, reproduced below, shows the remarkable ups and downs in both rates and exemption level from 1915 to 2007. (In 2010, of course, rates and exemptions reached their irreducible minimum: zero.)

Click for larger image.

1 comment:

Jim Gust said...

I predict that on January 1, 2013, the federal estate tax exemption will be $1 million. It might be raised later, and that might apply retroactively.

But, given the incompetence of the Republicans, I doubt it.