2013 Estate Tax Picture Still a Blur

12/18/2012

The federal estate tax appears to have become a sticking point in the fiscal cliff negotiations. While President Obama supports going back to the estate tax laws that were in effect in 2009 ($3.5 million estate tax exemption, $1 million gift tax exemption, 45% estate tax rate), there is a growing divide between Democrats in Congress who support the president and those who have sided with Republicans who want to extend the current estate tax laws ($5.12 million estate tax and gift tax exemption, 35% estate tax rate).

And remember, because of a sunset provision in the law, if a compromise cannot be reached by the end of 2012, then on January 1, 2013 the estate tax and gift tax exemptions will drop to $1 million and the estate tax rate will jump to 55% - which is something that it appears neither Democrats or Republicans want.

On top of this, a group of wealthy progressives (including Warren Buffett, Jimmy Carter, Abigail Disney, and Bill Gates Sr.) recently released a  "responsible estate tax" proposal which called for a $2 million estate tax and gift tax exemption and base estate tax rate of 45% that will gradually increase on larger estates.

The only thing that is clear this late in the year is that estate tax proposals are all over the place.

To sum it all up:

  • Obama - $3.5 million estate tax exemption, $1 million gift tax exemption, 45% estate tax rate; the Tax Policy Center projects that this will raise $258 billion by 2021
  • Republicans and a handful of Democrats - $5.12 million estate tax exemption, $5.12 gift tax exemption, 35% estate tax rate; the Tax Policy Center projects that this will raise $161 billion by 2021
  • Nothing is Done Before Year End - $1 million estate tax exemption, $1 million gift tax exemption, 55% estate tax rate; the Tax Policy Center projects that this will raise $531 billion by 2021
  • Wealthy Progressives - $2 million estate tax exemption, $2 million gift tax exemption, graduated estate tax rate beginning at 45%; how much this would be projected to raise by 2021 cannot be calculated since the graduated rate schedule was not disclosed

So where does this leave us?  It is still a blur.