As practitioners are well aware, due to Congress' inaction the federal estate tax is temporarily repealed in 2010 and is scheduled to return in 2011 with a 55 percent top rate and a $1 million exemption. Congress' lack of action pertaining to the estate tax is largely due to the current political divide between a majority of Republicans who favor a permanent repeal of the estate tax and democrats who favor a top tax rate in the range of 35 to 45 percent and an exemption somewhere between $3.5 million and $5 million.
The midterm elections seem to have provided a fresh burst of energy for those in favor of a permanent repeal of the estate tax. The American Family Business Institute (AFBI) sponsors a Death Tax Repeal Pledge. The AFBI provides a list of over 400 candidates, mostly Republicans, who have signed the pledge. The estate tax has become a hot issue particularly among farmers and small business owners who claim the death tax is always looming. Those in favor of repeal are also quick to connect the return of the estate tax with the troubled job market. For example, former Congressional Budget Office Director Douglass Holtz-Eakin has calculated that reinstating the death tax will cost the country 1.4 million small-business jobs. See Douglas Holtz-Eakin and Cameron T. Smith, "Growth Consequences of Estate Tax Reform: Impacts on Small and Family Businesses," American Family Business Foundation, September 2010.
Despite this new push for an all out repeal, an actual repeal is still a long shot. However, campaign promises made for repeal could put pressure on congress members to enact an estate tax with lower top tax rate and a higher exemption amount or to favor a gradual reducing of the estate tax from a 45 percent top rate to 35 percent over a 10 year period.
Whatever the future holds, practitioners must advise clients as the law currently stands and be prepared for a return of the estate tax in 2011. Helping clients plan for the future is more vital now than ever. Helping clients plan for the future by providing valuable planning strategies in using various estate planning techniques is as important as it has ever been, if not more so. See LexisNexis Tax Advisor -- Federal Topical 3H:1.01.
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