Whither Estate Taxes?
September 20th, 2009 by Margolis
Ever since Congress passed and President Bush signed the phase-out of the estate tax in 2001, everyone expected Congress to make a permanent change by now. Under the current law, the threshold at which estates are taxed increased from $1 million in 2001 to $3.5 million for those dying this year. For those dying in 2010, there is no tax no matter the size of the estate, but for those who make it to 2011, the threshold returns to $1 million.
I have long predicted that Congress would ultimately fix the threshold at $2 million, the figure in place from 2006 to 2008. Until recently, however, the weight of opinion was that Congress would make this year’s $3.5 million figure permanent.
But, so far, Congress has not acted and it’s unlikely to act before the end of the year with health care reform and other large topics on its agenda. The current scuttlebutt is that Congress will extend the $3.5 million threshold through 2010 and address a permanent resolution next year.
My prediction of a $2 million threshold is beginning to look more and more likely because the federal government needs the money. With larger and larger deficits facing us for decades to come, the question is where can government cut expenses and where can it raise money with the least pain to the fewest people? Since fewer than 1 percent of estates pay any estate tax, clearly it affects the fewest people.
And the amount of money at stake, while a small part of the government’s entire revenue, is anything but paltry. One estimate of the difference in revenues from 2011 to 2018 between a $1 million and a $3.5 million threshold is $200 billion.
Given the need for funds and the recent financial debacle seen as caused by many on Wall Street who do pay estate taxes, it may be hard to explain why those with estates over $2 million ($4 million for a married couple) shouldn’t pay any taxes. This is especially so if the alternative is higher taxes or lower benefits for everyone else.
One prognosticator, John J. Scroggin, founding editor of the NAEPC Journal of Estate and Tax Planning and prior co-editor of Commerce Clearing House’s Journal of Practical Estate Planning, recently handicapped the likely outcomes as follows: $1 million threshold – 40%; $2 million threshold – 40%; $3.5 million threshold – 10%; Congress puts off a decision beyond 2010 – 10%. It will be interesting to see the outcome, especially for those whose estates exceed $1 million ($2 million for a married couple) — or at least for their heirs.
Tags: estate taxes