Barack Obama and congressional Democrats plan to retain the estate tax instead of allowing it to expire as scheduled in 2010.
Elimination of the tax on big inheritances was approved by Congress and President George W. Bush in 2001, when there were large projected budget surpluses, with rollbacks phased in gradually and its full elimination to take effect next year.
Under Obama’s plan, the tax would be locked in at the rate and exemption levels that took effect this year, according to a front-page story in Monday’s Wall Street Journal.
That would exempt estates of $3.5 million — $7 million for couples — from the estate tax. The value of estates above that level would be taxed at a rate of 45 percent.
If the tax were returned to levels before the 2001 action, the tax would exempt only $1 million with the rest taxed at a 55 percent rate.
Democrats who favor retaining the tax argue that the budget deficit is huge, full repeal of the tax would cost the Treasury more than $500 billion over a decade, and the wealthy have already benefited from the Bush tax cuts, the Journal reports.
Advocates of eliminating the estate tax contend that the Obama plan is the wrong move during a recession. Bill Rys, tax counsel for the National Federation of Independent Business, told The Journal that small businesses that are struggling should not have to devote resources to estate planning as they seek ways to minimize taxation.
The Senate rejected GOP efforts to repeal the estate tax in June 2006, with Republican Bill Frist of Tennessee calling it a “vicious tax.” Democratic Sen. Richard Durbin of Illinois called the repeal bill “the most outrageous piece of special interest legislation in modern memory."
Under Obama’s plan, only the largest estates — fewer than 2 percent of annual deaths — would be subject to the estate tax.
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