Estate Tax Final Obstacle to Reaching Compromise on Bush Tax Cuts

The President will meet with Democratic and Republican leaders this week to discuss the Bush-era tax cuts. Republicans want to extend the tax cuts permanently, and the White House proposes extending them only for families with household income of $250,000 or less. As time runs out, some Democrats are willing to compromise and extend the tax cuts for households earning up to $1 million. Compromise is inevitable, but the estate tax issue may present the final obstacle to reaching this compromise.

The following three estate tax proposals have gained support in the Senate, but do not have the required 60 votes behind them:

• Jim DeMint (R-SC): Permanent repeal of the estate tax.
• Harry Reid (D-NV): 45% rate and $3.5 million exemption.
• Jon Kyl (R-AZ) and Blanche Lincoln (D-AR): 35% rate and $5 million exemption.

Opponents of the estate tax argue that it is a double tax and forces heirs to sell inherited property and businesses to pay the taxes. Proponents argue that it will help reduce national debt. If Congress fails to compromise, the estate tax will return at a 55% rate with a $1 million exemption.

See Lauren McNitt, Estate Tax Issue Hampers Compromise on Bush Tax Cuts, Producersweb.com, Nov. 29, 2010.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this to my attention.