It has come to this: Congress, quite by accident, is incentivising death. When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death’s door to stay alive until January 1 so they could spare their heirs a 45% tax hit.
It has come to this: Congress, quite by accident, is incentivising death. When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death’s door to stay alive until January 1 so they could spare their heirs a 45% tax hit.
Now the situation has reversed: If Congress doesn’t change the law soon — and many experts think it won’t — the estate tax will come roaring back in 2011.
Not only will the top rate jump to 55%, but the exemption will shrink from $3.5m (€2.8m) per individual in 2009 to just $1m in 2011, potentially affecting eight times as many taxpayers.
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The maths is ugly: On a $5m estate, the tax consequence of dying a minute after midnight on January 1, 2011 rather than two minutes earlier could be more than $2m; on a $15m estate, the difference could be about $8m.
Of course, there is a “death incentive” whenever Congress raises the estate tax. But it hasn’t happened in decades; the top rate has held steady or fallen since 1942, according to tax historian Joseph Thorndike of Tax Analysts, a nonprofit group. In fact, the jump from zero to 55% would be “the largest increase in a major tax that we’ve ever seen,” Thorndike says.
To read the full story, visit efinancialnews.com
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