Beginning in 2009, the legislation would permanently exclude the first $2 million ($4 million for a couple) of an estate’s value from being subject to any tax. The exemption levels would be adjusted for inflation in subsequent years, and the marginal tax rates would increase to 55 percent for estates over $10 million.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) restructured the estate tax to fluctuate every year through 2011. According to EGTTRA, in 2008, an estate will be subject to the tax if its value exceeds $2 million ($4 million for a couple), compared to $3.5 million ($7 million) in 2009, and establishes 2010 as the only year there will be no estate taxes assessed whatsoever. Unfortunately, attached to this legislation is a sunset provision that would limit all of the tax relief included in the law to ten years, and therefore in 2011, all of the tax cuts will return to their 2001 levels—with a top tax rate of 55 percent and a $1 million exemption.
While NSBA continues to support full repeal of the estate tax, NSBA members have agreed to a five-point compromise plan:
- Permanent repeal of the estate tax on small and family-owned businesses—including farms,
- Exempt estates of $7.5 million with a tax rate set at 15 percent,
- The tax rate will be tied to the capital gains tax rate to ensure a more fair method of passing-down a business—regardless of what event triggered the transfer,
- The estate tax exemption would be fully-indexed for inflation, and
- Calculation of estate tax owed would include a step-up in basis, allowing heirs to use the higher basis to figure their gain when the property is ultimately sold.
Since introduction, H.R. 6499 has been pending in the House Ways and Means Committee and does not have any additional cosponsors. Despite a series of Senate Finance Committee hearings on the estate tax earlier this year, it is unlikely estate tax reform legislation will be addressed before the elections this fall.