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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Federal estate tax’s future remains in flux

Michael A. Fletcher Washington Post

The federal estate tax is on course to be repealed for one year beginning in January, allowing heirs of large inheritances to temporarily escape the so-called death tax, although a little-noted provision in the law would expose many smaller estates to higher tax liabilities.

Senate Republicans blocked a Democratic attempt temporarily to extend the estate tax earlier this week, meaning that barring any unforeseen action, the levy will disappear on Jan. 1. The move was hailed by conservatives who have long opposed the estate tax as a form of double taxation, hitting income once when it is earned and then when it is passed on.

“There’s nothing that outrages the American people more than the thought that they will have to visit the IRS and the undertaker on the same day,” said Senate Minority Leader Mitch McConnell, R-Ky.

The celebration, however, is likely to be short-lived as Senate Democrats have promised to pass a temporary measure early next year that would apply retroactively to Jan. 1. Even without a fix, the estate tax is slated to go back into force in 2011, with higher tax rates and lower exemptions than are in the law now.

The complicated situation is the result of a series of Bush-era tax cuts enacted in 2001. Backers of the estate tax cut wanted to outright kill the tax – which is estimated to raise $25 billion this year – but they settled for a plan that slowly increased the tax exemptions for estates while lowering the estate tax rate.

Democrats have long regarded any repeal of the estate tax as helping only the most wealthy Americans at a significant cost in federal revenue. And now that they are in power in Congress, Democrats have worked to keep the tax in place, albeit at modified rates.

Two weeks ago, the House passed an extension of the estate tax at the 2009 rates. The Senate, under the pressure of dealing with a health care reform proposal, has not agreed on any extension proposals, setting up the current situation.