On Thursday Rep. Jim McDermott (D-WA), a senior member of the House who is on the tax writing committee, introduced the Sensible Estate Tax Act of 2011. Here are the key points of the bill (note - at the time I am writing this the text of the bill has not been made available to the public, so the key points have been derived from the sources listed below):
- Individuals would receive a $1,000,000 estate tax exemption that would be indexed for inflation starting in the year 2000.
- The estate tax rate would be 55%.
- The concept of portability of the estate tax exemption between married couples that is available for the 2011 and 2012 tax years would be made permanent, which would give married couples the ability to pass on $2,000,000 (indexed for inflation) free from estate taxes.
- The state death tax credit would be restored, which would be a boon for the majority of states that used to benefit from this credit by collecting a "pick up tax."
- The lifetime gift tax exemption would equal the estate tax exemption.
- Loopholes in asset valuation and minority discounts would be closed.
- Heirs would be required to use the same income tax basis for inherited assets as estates use for calculating estate taxes.
- Grantor retained annuity trusts would be required to have a ten year minimum period.
- The generation skipping transfer tax exemption would be limited.
According to Rep. McDermott, "This legislation will take us back to an estate tax that worked during one of America's most prolonged periods of economic prosperity. It provides the kind of certainty that practitioners and taxpayers have been calling for since the Bush tax cuts took effect. Never in our history has an exemption increased over 500% in less than a decade and known loopholes been left open for abuse. The estate tax is broken, and it's time we fix it."
H.R. 3467 has one co-sponsor, Charles Rangel (D-NY). Stay tuned for updates.
Update, November 28, 2011: More on H.R. 3467, The Sensible Estate Tax Act of 2011
Sources:
- McDermott Bill: "Making the Estate Tax Fair and Equitable Again"
- Citizens for Tax Justice: State-by-State Estate Tax Figures Show that President's Plan Is Too Generous to Millionaires
- House Dem proposes estate tax changes
Follow the bill on OpenCongress.org: H.R. 3467: To amend the Internal Revenue Code of 1986 to reform the estate and gift tax.
Follow the bill on govtrack.us: H.R. 3467: To amend the Internal Revenue Code of 1986 to reform the estate and gift tax.
It is unfortunate that we still think we can control dynamic behavior. For the last 50 years, the estate tax has only amounted to 1.1% of all the IRS revenue. People who are wealthy either sell out to avoid the tax, or hide assets in trusts to legally avoid the tax. CPAs, Tax Attorneys are making millions helping people with tax avoidance strategies, while the government gets chump change.
The answer is to stop thinking that 55%, 45%, 35% will change the collected amount. It never has, and the rates were once as high as 90%. There is a better way, and that is to change the collection method. Base it on the wealthiest taxpayers, who are the most likely to have an estate, and make it reasonable to comply with.
http://www.SimplifyEstateTax.org has the solution.