Opens in a new tab

Death and taxes will continue

August 13, 2009

No big surprise here. The House is expected to propose a one-year
extension of the federal estate tax
rather than let the scheduled 2010 full repeal take effect, according to the Wall Street Journal.

Federal estate taxes were first collected in 1916. I'm sure complaints about the tax started that year.

Thanks to 2001 tax legislation, the tax is being phased out. The table below shows the current exemption schedule and the tax rate applied to property over that amount. If no Congressional action is taken by Dec. 31, the federal estate tax
will disappear next year, but it will return in 2011 with the more costly, pre-law-change rules in effect; that is, a 55 percent tax rate with only the
first $1 million of an estate exempted from taxation.

Year of Death Federal Estate Tax Exemption Amount Highest Rate
on Amounts
Over Exemption
2002 & 2003 $1 million 50% in 2002
49% in 2003
2004 & 2005 $1.5 million 48% in 2004
47% in 2005
2006, 2007 & 2008 $2 million 46% in 2006
45% in 2007 & 2008
2009 $3.5 million 45%
2010 No Estate Tax No Estate Tax
2011 $1 million 55%

Politically, no one wants the higher rate and exclusion amount to return in 2011, so the conventional wisdom has been that Congress would take care of the estate tax once and for all (as much as "once and for all" means on Capitol Hill) and work out a permanent (again, accounting for Congressional semantics) estate tax fix based on 2009 figures.

But all sorts of things, such as stimulus bills and health care reform battles, have shunted the estate tax off to the legislative side.  And now, with total estate tax repeal fast approaching, lawmakers apparently have decided a temporary fix is better than nothing.

Who could blame them for wanting to make sure the estate tax stays on the books. With all this crazy talk about nonexistent health care "death panels" (by the way, expect the provision that sparked this falsehood to be dropped from the final reform bill), letting the estate tax expire might be seen by the lunatic fringe as yet another reason why heirs might want to pull the plug on a rich relative next year. And given the economy and human nature, it's probably better to avoid any possible temptation. (Ms. Cynical, your table for one is ready.)

So the House will likely propose to scrap the one-year repeal and
instead apply this year's estate tax rate and exemption for another year.

Place your political bets: Some Congress watchers say a more long-term fix might be possible
before December runs out. But just in case, the Hill is once again
hedging its bets.

Speaking of bets, the estate tax situation is a perfect example of of how much Washington, D.C., resembles Las Vegas. Some hunches and wagers pay off; others don't.

The estate tax, or what the law's opponents like to call the death tax, has always had more value as a political bludgeon than a real
revenue raiser. It only affects at most 2 percent of the taxpaying
population, but it provides a lot of opportunity for hand wringing and
anti-tax railing.

And its repeal, instituted during Dubya's administration, was similarly political, as well as a bit disingenuous. Its total elimination was predicated on the possibility that the no-estate-taxers would still be in control of Capitol Hill when the law finally disappeared.

Again, some bets you win, some you lose. And politicians, like gamblers, know you play the hand you're dealt.

So with elections rolling around again in 2010, they're looking for
ways to make the estate tax pay off or at least not produce a loss. A temporary retention of 2009 rates should do that.

It will help the mostly Democrats, who want some kind of tax, and the mostly Republicans, who want the estate tax gone, a chance to make their respective campaign trail pitches without worrying about an actual, major change to the tax code.

Related posts:

Share:

The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

Latest Posts
confused office worker
8 workplace benefits questions to ask this enrollment season

October 26, 2026

Millions of U.S. workers are now deciding what workplace benefits, some of which also offer…

Read More
TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

Comments
  • A one year estate tax patch?

    The estate tax is scheduled to disappear for folks dying next year, but springing back as nasty as ever in…

  • Estate Tax Repeal in 2010 Not a Big Deal Because Congress Can Pass Retroactive Tax Amendment

    Dont be surprised if Congress does nothing about the estate tax this year, not even a one year extension. Instead, it can wait and pass an amendment that retroactively taxes the estates of people who die in 2010. Lots of…

  • Estate Tax Repeal in 2010 Not a Big Deal Because Congress Can Pass Retroactive Tax Amendment

    Dont be surprised if Congress does nothing about the estate tax this year, not even a one year extension. Instead, it can wait and pass an amendment that retroactively taxes the estates of people who die in 2010. Lots of…

Leave your comment