As reported today by fellow lawblogger Karen Meckstroth in her Bay Area Wills, Trusts And Probate Report Blog two Representatives have filed different bills to amend the Internal Revenue Code and to restore the estate tax which would otherwise terminate for one year in 2010. The bills proposed by Rep. Berkley (D.NY) and Rep. Schrader (D-OR) may each be viewed by clicking on the link provided by Ms. Meckstroth in her article. Both provide for an increase in the basic estate tax exemption to 5 million dollars. and for a reduction in the maximum estate tax and gift rate.
Interestingly enough, the Berkley bill also provides for a phaseout of the deductions now allowed for state estate taxes. A New York State resident with a six million dollar estate would pay no federal estate tax on the first five million dollars of his or her estate but would have a two hundred fifty thousand dollar New York State estate tax bill (five per cent of everything over one million dollars). Since countless wealthy New Yorkers have already fled to sunny Florida –where there is no estate tax– how severely would this migration be affected If this tax lost its federal deductibility? Even though it might amount to no more than an additional hundred thousand dollars or so in federal estate tax (under the reduced rates), some might regard it as that proverbial last straw.
More important is the fact the estate tax will not kick in until the decedent has left a gross estate high enough to shelter the family farm and the family business. Since it is usually possible to shelter twice the amount of the unified credit where a married couple is involved (provided they engage in some sensible estate planning), most estates will not pay any federal tax on estates under ten million dollars after both spouses have died. At the same time, seriously wealthy folks (think about some of the chief executives of some banks and insurance companies we have bailed out!) will have to pay their fair share without impairing their survivors’ ability to get by nicely. This will insure not only a source of income for our strapped government but also will continue to provide incentive to make substantial charitable bequests for the public good.
The restoration of the estate tax will also help to prevent a situation where there is a concentration of extreme wealth amongst one or two percent of our population. This has never boded well for any society where it has occurred.