The Wall Street Journal is reporting that "The House voted 269-156 to eliminate the estate tax for all but the wealthiest Americans, effectively ending Republican efforts to permanently repeal the tax altogether. The vote puts pressure on a handful of Democrats in the Senate to back a compromise that would tax roughly one of every 640 deaths each year. The House bill, which would be effective in 2010, would exempt the first $5 million of any estate from the tax, and tax the next $20 million at the tax rate on capital gains, currently 15%. Estates above $25 million would be taxed at twice that rate, or 30%. The thresholds would be indexed for inflation, a move made to secure backing from conservative Republicans who would have preferred full repeal.
The legislation also would allow individuals to "step up" the tax basis of inherited assets; that is, if an heir sells an asset, the capital-gains tax is calculated using the value of the asset at the time it was inherited, regardless of the original cost."
"Under current law, the estate tax would disappear for a single year in 2010 and then revert to the pre-Bush level of 55% on estates above $1 million. Compared with that, the new law would reduce federal tax receipts by about $280 billion over the next decade, according to the official scorekeeper, the congressional Joint Committee on Taxation. That is about 75% of the price tag for full repeal."
"Under the 2001 Bush tax cuts, the first $2 million of assets in an estate of a person who dies this year is exempt from the tax. The levy will hit one of every 200 people who die this year, according to the Tax Policy Center, a joint venture of the Brookings Institution and Urban Institute think tanks. If Congress fails to act, current law would lower the exemption to $1 million in 2011, which would mean that the estate tax would apply to nearly one in 50 American deaths. The House legislation would reduce the scope to just one in 641 deaths in 2011, the Center estimates."
Jeffrey Skatoff, of the law firm Clark Skatoff LLP, www.clarkskatoff.com, believes that increasing the exemptions to $5 million per person will place the estate tax burden only on the wealthiest two-tenths of one percent of American families. For other families engaging in estate planning, traditional concerns, such as trust planning, asset protection and philanthropy, will take center stage. The House legislation sets the stage for an eventual compromise with the Senate. "Removing the uncertainty as to what the future estate tax exemption rates will allow our clients to understand the estate tax ramifications of their plans, allowing better decision making and better estate plans."