New estate tax rules are costly
As lawmakers in Washington D.C. continue to debate the size and scope of the federal government, many are proposing deep cuts and substantial changes to health care, education, and other vital public structures. The programs under scrutiny primarily benefit low to moderate income Americans, yet earlier this year, lawmakers extended the estate tax which benefits only the largest one-quarter of 1 percent of estates.
The estate tax, the amount paid on assets of a decesased person, has been the subject of intense political debate and negotiation for years.
As we noted back in December, the compromise between President Obama and Congressional leadership resulted in estate tax rules for 2011 and 2012 that were considerably weaker than those in effect in 2009 (the tax was set to expire at the end of 2010). The changes exempted estates from paying taxes on the first $5 million for individuals ($10 million for couples), and sets the tax rate on these estates at 35 percent—down from 45 percent in 2009.
According to the Center on Budget and Policy Priorities (CBPP), the new rules will cost about $23 billion more than reinstating the 2009 rules over the same two years. The new estate tax rules will only benefit the largest one-quarter of 1 percent of estates, since they are the only ones that that would owe any estate tax under the 2009 rules. Taxable estates will receive more than $1 million apiece in tax breaks this year from the new rules, on average, and estates worth more than $20 million will receive an average of nearly $3.8 million apiece.
CBPP argues (and we agree) that in light of the nation’s serious long-term budget problems — and proposals to slash a wide range of government services, particularly Medicare, Medicaid, and programs for low-income Americans — it would be irresponsible to extend these new rules beyond 2012.
Read the full CBPP paper here