Estate Tax Key in Fiscal Cliff Negotiations

Friday, 28 Dec 2012 09:26 AM

By Dan Weil

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As President Barack Obama prepares to meet with congressional leaders at the White House Friday, the estate tax looms large as an issue that would be part of a deal.

In a meeting of Senate Republicans Thursday, they agreed to support a deal that would raise taxes for the wealthy and continue the 35 percent tax on estates worth more than $5 million, a Republican senator who participated told The Hill.

It’s unclear how that estate tax proposal will fly with Democrats. The party’s leadership has called for increasing the rate to 45 percent and cutting the exemption to $3.5 million. Liberals declined to comment Thursday on whether the estate tax issue would be a deal breaker for them.

Editor's Note: Should Obama and Congress Raise Taxes? Vote Now.

Moderate Democratic senators who face strong re-election challenges in rural states may support the Republican stance. Sens. Mark Pryor, Ark., and Mary Landrieu, La., already have expressed opposition to their leadership on the issue. And Sens. Max Baucus, Mont., and Kay Hagan, N.C., may join them, according to The Hill.

The possibility of higher estate taxes next year has some distasteful ramifications. Accelerating a death to December from January would generate $1.18 million in tax savings for a $10 million estate.

“It may seem incredible to contemplate pulling the plug on grandma to save tax dollars,” writes CNBC’s John Carney. “While we know that investors will sell stocks to avoid rising capital gains taxes, accelerating the death of a loved one seems at least a bit morbid — perhaps even evil.”

But studies show there is some "elasticity" in the timing of important end-of-life decisions, he says.

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