Obama Reaches Deal with Republicans Regarding Estate Tax

On Monday, President Obama announced that he and congressional Republicans struck a deal that would extend the Bush-era income tax cuts for two more years. The deal also calls for a $5 million estate tax exemption and a 35% rate.

However, the details of the Obama deal regarding the estate tax are not clear. For example, whether the former step-up in basis will be part of the deal is unknown. Further, the deal still has to be sold to skeptical congressional Democrats.

This announcement seems to have only intensified the estate tax debate, angering Democrats and large organizations such as United for a Fair Economy. Interests that were once aligned are no longer aligned, and the estate tax portion of this deal could be the “Great Divider,” causing the entire deal to blow up. Opponents find the 35% tax rate offensive, and even President Obama does not like the deal, stating that “Republicans have asked for more generous treatment of the estate tax than I think is wise or warranted.”

Despite being enraged by the deal, some of its opponents still believe that Congress should approve it for a few reasons. First, the alternative (the estate tax returning in 2011 with a $1 million exemption and a 55% rate) would anger constituents even more. Second, the deal only lasts for two years. Third, the economy may be stronger after those two years, which would allow Obama to take a strong position against tax cuts for the wealthy at that time.

See Hani Sarji, Obama Announces Estate Tax Deal with Republicans: 35% Tax Rate and $5 Million Exemption, for Two Years, Forbes, Dec. 6, 2010; See also Hani Sarji, Obama-Republican Estate Tax Deal Draws Criticism: “The Deal is Unacceptable,” Forbes, Dec. 6, 2010; see also Hani Sarji, Estate Tax in Obama Deal: The Great Divider, Forbes, Dec. 7, 2010; see also Jerry Gleeson, A Second Act for Estate Tax?, RegisteredRep, Dec. 7, 2010.

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