What you can leave to your heirs without paying federal estate tax is a burning tax questions Congress is deliberating on amid the approach of the fiscal cliff . Today a group of wealthy Americans put out a proposal that would set the estate tax exemption at $2 million per person, with a 45% teaser rate that would “rise on the largest fortunes,” according to Mike Lapham, director of Responsible Wealth, a project of the non-partisan, non-profit United for a Fair Economy, which is shopping the proposal on Capitol Hill today.
The proposal has some big name backers: Warren Buffett, former President Jimmy Carter, George Soros, Bill Gates Sr., John C. Bogle, founder of the Vanguard Group and Robert Rubin, former secretary of the Treasury. “A substantial estate tax along the lines of what’s being discussed here can provide revenue at a time when our federal government badly needs revenue,” said Rubin on a call to pitch the proposal to Congressional staffers and the press.
“We have the choice of taxing a small percentage of the wealthiest who certainly can afford it, or we can cut social programs for those who need them,” said Abigail Disney, a philanthropist and filmmaker and heir to the Disney fortune.
In 2012 (if you die in 2012) an individual can leave $5 million federal estate tax free, and the tax rate on assets above that exemption level is a flat 35%. If Congress does nothing, on 1/1/13 the exemption level reverts to $1 million per person with a top rate of 55%. President Barack Obama’s proposal is a $3.5 million per person exemption, with a flat 45% rate.
“We think Obama’s proposal leaves too much on the table,” says Lapham. If the estate tax law reverts to the $1 million exemption/55% rate that would bring in $536 billion over the next decade. By comparison, Obama’s proposal would bring in $256 billion less. “We’re trying to find somewhere in between,” Lapham says.
What will Congress do?