The expiration of the Bush tax cuts is rapidly approaching. Disagreement in Congress over which taxes should go up and which should stay down threaten to paralyze the process. A new possible clogging issue is beginning to emerge in the Senate, the estate tax.
The estate tax has changed dramatically over the past decade. The tax rate has fallen gradually every year since the first of the Bush tax cuts was passed in 2001, and the exemption, the amount of an estate exempt from estate tax, has increased. On January 1, 2010, the estate tax disappeared entirely.
The Bush tax cuts are soon to expire, and when they do the estate tax is slated to return in a big way. Overnight the estate tax rate will become 55% in the highest bracket, with an exemption of $1 million.
Three proposals have surfaced in the Senate. Senate Majority Leader Harry Reid (D-NV) advocates an estate tax of 45% in the highest bracket with an exemption of $3.5 million. Senator Jim DeMint (R-SC), conversely, wants the estate tax to be permanently repealed. A bipartisan third group has proposed a rate of 35% in the highest bracket and an exemption of $5 million. None of these groups has the 60 votes it will likely need to move its proposals forward.
The estate tax has always been a divisive topic. Supporters argue it promotes meritocracy, while opponents say it is unfair, especially to small businesses and family farms. Both sides tend to be passionate and getting them to move to compromise is often quite difficult.
For more information on the estate tax, or for other tax concerns, contact the Illinois tax attorneys at Horowitz & Weinstein.