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House Extends Estate Tax Permenantly

This week, the House of Representatives passed H.R.4154 [3], titled the “Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009.” HR 4154 would amend the Internal Revenue Code to prevent the repeal of the estate tax next year. Under current law, there would be no estate tax for 2010 and your estate would transfer tax free to your heirs.

What is in the House bill? Thought many expect the bill not to pass in the Senate, the House bill exempts the first $3.5 million of a person’s estate and the first $1 million in gifts. Then the highest rate applied to the taxable portion of the estate would be 45%. CNN Money [4] does some morbid math and claims that of the 2.5 million Americans expected to die in 2009, only 0.25% (5,500) have estates large enough to be taxable.

Many experts don’t expect the bill, with its current numbers, to pass in the Senate. In that chamber, there is a bipartisan proposal for a $5 million exemption and a top rate of 35%. Either way, it’s likely that some sort of estate tax law, perhaps a stop-gap measure tax for a year, will be passed. (Remember, for a bill to become law, both House and Senate must pass the bill, it must be reconciled, then signed by the President… so this bill has only made it through step one)

Despite my Democratic leanings, I’ve never liked the idea of an estate tax. The WSJ [5] quotes Democratic Rep. Jared Polis of Colorado: “Estate taxes help prevent a permanent aristocracy from arising in this country.” While that sounds great on the surface, I bet the ridiculously wealthy, the 0.25% this targets, have long adapted to the estate tax. They have top notch lawyers and accountants setting things up so they don’t get caught.

Also, if I’ve earned my money fair and square, paid all my taxes on it the first time around, why take a piece after I die? Since I’ve never done any estate planning, I don’t know much about the loopholes and end arounds I can run on the estate tax (I bet there are plenty), I might be blowing this out of proportion (especially since the exemption is would be for $3.5M) but the idea of it bothers me.