Blogs Derek's Tax Blog Welcome to 2009
You made it! The Federal Estate Tax exemption is now $3.5 million; however, before you get too excited please remember that the Washington State exemption remains at $2 million.
President Elect Obama pledged to keep it at the $3.5 million level during the election, but with all of the politics surrounding the estate tax, nothing is certain. Some of the other players to watch include Senate Majority Leader Harry Reid and Senate Finance Committee Chairman Max Baucus, D-Mont. Senator Reidwas instrumental in preventing the estate tax from being repealed. Senator Baucus has indicated that the tax bill will likely come after the economic stimulus bill and will not increase taxes (other than freezing the estate tax at 2009 levels for 2010) preferring to allow certain taxes to increase automatically when President Bush’s tax cuts expire in 2011.
The future of the estate tax is also dependant on factors that did not exist or were not fully explored during the election. For example, Obama had originally planned to pay for his promise of affordable health care by rolling back some of the Bush tax cuts and repealing the repeal of the estate tax. But we have already learned that due to the economy that Obama is not planning on repealing the Bush tax cuts leaving funding for health care in question. Also, with stimulus bills worth hundreds of billing dollars hitting the tax payers, funding for other “top priorities” may be in question. The estate tax has been a “go to” when extra tax dollars are needed, like fixing Social Security. It is not just because the tax payers are dead and don’t put up a lot of fight. It is also because millionaires are an unsympathetic group, especially in times of economic hardship.
Another factor to consider is timing. The debate on the estate tax is just re-emerging. Let’s face it, as a nation we have more pressing issues. But the longer that it takes for Obama’s tax bill to be enacted the greater the opportunity for others to enter and sway the debate. Image that the tax bill is coming to the floor of the Senate in late 2009 or early 2010 and that we are facing huge budget shortfalls and the first traces of inflation. How safe in that type of environment will a $3.5 million exemption be? Or, will the positions offered by groups like Citizens for Tax Justice take hold? The other side of the debate is also getting ready. The American Farm Bureau’s biggest concern is return of the estate tax ‘full force’.
We are just entering a time of great instability for the Federal Estate Tax. Last week the exemption was $2 million, this week it is $3.5 million. Where will it be in 6 weeks, 6 months, or 6 years?