NCPA - National Center for Policy Analysis


October 16, 2008

Because of tax-law changes in recent years, the federal estate tax now hits fewer estates than ever.  The Internal Revenue Service received a total of only 23,000 taxable estate-tax returns in 2006; down from 52,000 in 2001.  Even so, the estate tax is still a hot political issue.  Here is an update on the current law, where the candidates stand, and what their areas of agreement could mean for many families and their heirs.

Regarding exemption and rates:

  • Currently, the basic federal estate-tax exemption is $2 million per person and the top estate-tax rate is 45 percent; next year, the exemption is scheduled to jump to $3.5 million, the largest one-year increase in history.
  • In 2010, the estate tax is supposed to disappear completely, and in 2011, the tax will return with an exemption of only $1 million and a top tax rate on the largest estates of 55 percent.
  • McCain proposes raising the exemption as soon as possible to $5 million and cutting the top tax rate to only 15 percent.
  • Obama wants to keep the exemption at $3.5 million and the top rate at 45 percent.

Both candidates agree that the exemption amount should be easily portable:

  • Obama want to eliminate the estate tax for 99.7 percent of families.
  • McCain opposes situations where taxpayers may have unfavorable tax consequences simply because they couldn't afford -- or didn't know -- to seek sophisticated tax planning advice.
  • Even though both candidates agree, nobody knows how quickly such a change might happen, what the effective date might be and how the fine print of legislative language would read.

Moreover, they agree on the idea of keeping today's system for valuing inherited property, including stocks and mutual-fund shares.

Source: Tom Herman, "On Death and Taxes…and the Candidates," Wall Street Journal, October 15, 2008.

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