Congress may consider estate tax this year
November 29, 2012
WASHINGTON—Estate taxes are high on the priority list of the lame-duck 112th Congress, as inaction would allow the so-called Bush tax cuts to expire. Estates in 2013 would be taxed after they exceed $1 million, compared to $5 million in 2012. In addition, current law that allows the unused portion of an exemption to be used by the surviving spouse would lapse. And, the taxable portion of the state would rise from a 35 percent to a 55 percent tax.
Although the lame duck’s inability to act could cause the exemption to drop to $1 million, it is not likely to remain at that level for long.
Even President Obama, who opposes extending the tax cuts for individuals earning more than $250,000 a year, favors keeping a relatively high exemption level. He has proposed a $3.5 million exemption and a 45 percent marginal rate. However, he has also proposed eliminating an advantage used by many families to transfer fully-appreciated assets through grantor trusts. Grantor trusts permit an older generation to move assets into irrevocable trusts but to retain an interest in the assets, such as income from the trust’s holdings. Obama would require grantor trust assets to be included in an estate for purposes of calculating estate taxes.
The Family Business Estate Tax Coalition, of which National Newspaper Association is a member, has argued vigorously against permitting estate taxes to revert to pre-Bush tax cut levels. It is supporting maintaining the exemption and marginal rates at 2012 levels, though some of its allies continue to argue for eliminating the tax altogether. Sen. John Thune, R-SD, is expected to become the principal voice for eliminating estate taxes in the 113th Congress. In May 2012, he introduced legislation co-sponsored by more than a dozen Senate Republicans that would have abolished the tax.
One challenge facing the proponents of the 2012 tax levels is the effect upon the federal budget. The Congressional Budget Office estimates that the 2012 tax levels would cost the treasury $400 billion over 10 years, although Obama’s proposed lower level would cost $251 billion.
NNA’s policy on estate taxes is to address the impact upon newspaper-owning families, where intangible assets can lift the value of a transfer over the exemptions. In those cases, a family could be required to sell the company in order to raise the cash for the tax.