The end of the Bush tax cuts could potentially affect all taxes the federal government collects. While most of the attention has remained fixed on the income tax, and the question of whether to allow the cuts on the top bracket to expire, another issue is coming to light that threatens to further divide and stall Congress.
The estate tax has always been a rough subject. It ought to be mentioned along with religion and politics when we’re markings topics verboten for polite conversation. Lawmakers tend to have strong opinions on the estate tax and they not to be flexible with them. At least since the first round of the Bush tax cuts in 2001, Congress has been trying to find consensus on the estate tax. They’re still looking.
Starting in 2001 the estate tax gradually fell, while the exemption rose. This year, however, the estate tax completely disappeared. When the Bush tax cuts expire, the estate tax is set to come screaming back at a rate of 55% in the highest bracket and with an exemption of $1 million. Compare this to 2009: 45% max rate and a $3.5 million exemption.
Three main factions have emerged in the Senate with ideas on what should happen to the estate tax. The first wants it to be permanently repealed. Jim DeMint (R-SC) is the de facto speaker for this point of view. The second wants a top rate of 45% and an exemption of $3.5 million. Senate Majority Harry Reid (D-NV) is the face of this idea. The final, bipartisan group proposes a top rate of 35% and an exemption of $5 million. No one group has the votes to get their idea forward. Any proposal will likely need 60 votes to make progress in the Senate.
So at the moment, no one knows what the estate tax will be like in 2011, and the possible scenarios are wildly divergent. Not only does this cause headaches for estate planners, but disagreement over the estate tax may jam up debate over other taxes, compounding the struggle to reach a legislative conclusion to the sunset of the Bush tax cuts.
For more on the estate tax, or for other tax concerns, contact the Chicago tax lawyers of Horowitz & Weinstein.
Horowitz Law Offices
311 West Superior, Suite 314
Chicago, Illinois 60654