Estate Tax Might Stick Around

President-elect Obama and Democrats in Congress hope to keep the estate tax instated in 2010, according to a report in the Wall Street Journal.

Democrats are planning to act to prevent the estate tax’s scheduled repeal. The WSJ said the Senate Finance Committee will move within weeks on legislation to reverse that law, and Obama is expected to detail his estate-tax preservation proposal in his budget next month, congressional tax writers told the newspaper.

Any changes in the estate tax will affect high-net-worth investors and their tax-planning advisers. In a Webinar in November, experts at Wilmington Trust predicted that the estate tax was likely to here to stay (see “HNWIs Should Take Tax Opportunities, Prepare for Change).

During the campaign, Obama’s plan locked the estate tax at the rate that took effect this year, according to the report. Estates of 43.5 million, or $7million for couples, would be exempt from taxation. States above that level would be taxed at 45%. During Clinton-era levels, the estate tax excluded $1 million from taxation with the rest taxed at 55%. Under Obama’s policy, all but the largest 2% of estates would escape taxation.

Data from the WSJ show that in 2007, the government collected more than $20 billion in net estate taxes.

Democrats argue for keeping the estate tax at its current level because it shouldn’t cause an additional impact on the economy. Also, an additional tax break for the rich shouldn’t take place with the record-breaking deficit, Democrats contend, according to the news report.

Critics of keeping the estate tax say it could hurt small businesses already struggling with the recession. The WSJ noted that most estate taxes are collected from estates of the ultra-wealthy, but business and farm groups argue small businesses and family farms struggle with the tax, at the very least devoting time and energy to planning ways to escape or minimize taxation as enterprises pass from generation to generation.