Unplug Those Vegetable Parents, Kids, the Estate Tax is Dead... For Now
"This is a disaster even if you are in favor of repeal."
The scheduled expiration of the tax on wealthy estates in the United States, unthinkable just days ago, has whipped the wealthy and their estate planners into a flurry of confusion over the changes to the controversial tax.
Under a quirk in the law, beginning on January 1 there will be a one-year repeal of a 45 percent tax on the value of estates over $3.5 million for individuals and $7 million for families.
"I'm going to be fending calls from people saying, 'Should I keep mom plugged in?'" said Carol Harrington, head of the private client group at law firm McDermott Will & Emery. "This is a disaster even if you are in favor of repeal."
Now, those who die on December 31 will pay the tax, while those who die a day later will not. In addition, the law's expiration unleashes a slew of changes, including for capital gains treatment of estates.
And because of the same quirky 2001 law that repeals the tax for a year, the estate tax is due to spring back to life in 2011 at a higher rate of 55 percent rate, which would be levied on estates with a value over $1 million for individuals.
The conventional wisdom had been that the Democrat-controlled Congress would pass an extension of current law. But opposition from Republicans to the tax and a U.S. Senate mired in a partisan health-care debate has prevented that from happening.
If anyone recalls, the Obama administration had hoped to battle those big bad rich folks by keeping the tax (WSJ):
President-elect Barack Obama and congressional leaders plan to move soon to block the estate tax from disappearing in 2010, suggesting the levy might outlive the "Death Tax Repeal" movement that has tried mightily to kill it.
The Democratic stance on the estate tax contrasts with Mr. Obama's reluctance to press forward with his campaign pledge to raise income-tax rates on top earners, which he worries could have an adverse economic impact during a recession.
But Democrats are determined to act quickly to prevent the estate tax's scheduled repeal. Elimination of the levy on big inheritances was approved by Congress under President George W. Bush in 2001, with rollbacks phased in slowly and its full elimination slated to take effect next year.
The Senate Finance Committee will move within weeks on legislation to reverse that law, and Mr. Obama is expected to detail his estate-tax preservation proposal in his budget next month, congressional tax writers said.
I hope they don't still have the projected Estate Tax provisions factored into their fancy little deficit math or that might end up sucking hard for Timmy going into 2010. He's got to keep Treasurys flowing like trunk vodka in a prom parking lot as is, this is a slight blow to whatever scheme he has up his sleeve to that end.
You read that correctly, right? In 2011, estates over $1 million will be subject to a 55% estate tax - anyone who croaks in San Francisco and happens to own property, even shitty property, probably has a $1 million estate. Hell, if I could cash in my tattoos for what I've paid for them and find some sucker to offload some gold $100 above spot (JP Morgan, you in trouble yet? I'm waiting for this disaster I was promised) and croaked shortly thereafter (2012 anyone?), my bitch ass estate might fall under this rule. You kidding me? I'm a broke SF hipster with a PBR problem, something is terribly wrong with this.
$1 million? Good thing I spend too much money on crap I can't afford otherwise Timmy might come for my ass in a year. Lucky for him, he's got 350 million other American asses to come after.
Cash-kaching! Unplug grandma now while you can, kids. Well not now exactly, wait until New Year's Day.