Friday, June 02, 2006

Estate Tax Repeal?--A Congressional Update

After a nine-month hiatus to address last summer's hurricanes and other issues, the Senate is about to consider H.R. 9, which would repeal the estate tax. At present, Jon Kyl (R-AZ), a supporter of repeal, does not believe that full repeal is possible--he favors an increase in the estate exemption (or credit equivalent) to $5 million and equal to the capital gain rate (now 15%) on the rest. Ranking Senate Finance Committee member Max Baucus (D-MT) favors a $3.5 million exemption ($7 million if married) and a graduated set of rates from 15-35%. Robert Greenstein of the Center for Budget and Policy Priorities believes that even the Baucus plan is too generous to the very wealthy.

I am not a fan of the estate tax--nor do I presently favor its repeal. I would come in somewhere between the Baucus and Kyl plans--$4 million (indexed) lifetime exemption (including gifts) and 25% flat rate on the excess.


Blogger lonelyeconomist said...

Since the tax applies to personal wealth and not family corporate holdings or wealth protected by certain types of trusts, a more realistic solution might be to raise the exemption to the 8-10 million range with a 25% flat rate on the remainder, then pass legislation to reign-in on asset sheltering strategies. This is more "realistic" in my view because the tax has always functioned most effectively against upper-middle class savers and investors whose wealth is held in securities, cash and real estate.
Another possibility would be that the Dems insist that the step-up basis be removed if inherited assets will be tied to the cap gains rate.

8:26 PM  
Blogger Dan Meyer said...

Interesting commentary--I would have to give more thought to your specifics.

3:49 PM  
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