I've been reading Mitt Romney's economic plan for America. So, I'll do a series of posts on his economic plans. Part of Mitt Romney's plan is the elimination of the estate tax.
In December 2010, as part of the tax cut compromise, the rate of the estate tax was lowered from 45% to 35% while the exemption for the tax went up to $5 million for an individual and $10 million for a couple. In 2009, estates valued up to $3.5 million for individuals ($7 million for couples) were exempted from the estate tax. The estate tax was 45%. Prior to 2001, estates for individuals up to $1 million were exempted ($2 million for couples). The estate tax was 55%. Romney and other Republicans have claimed that the estate tax punishes small business owners and family farms that accrued the wealth. Under the 2009 rules, the Tax Policy Center around 2,700 family farms and businesses owed money for the estate tax. With the 2010 rules in place, the number dropped to 40.
The Center on Budget and Policy Priorities reported,"even under the 2009 rules, very few estates paid the estate tax. According to recent estimates from the Urban-Brookings Tax Policy Center (TPC), only 6,460 estates nationwide — one-quarter of 1 percent of estates — would have owed any estate tax in 2011 had the 2009 levels been extended; fully 99.75 percent of estates would have been passed on tax free. Thus, 99.75 percent of estates will not benefit from the more generous exemption level and lower rate instated under the tax-cut compromise."
With the new law in place, the Joint Tax Committee estimates that the cost is $68 billion to the U.S. government as opposed to allowing the prior to 2001 laws to return. The Center on Budget and Policy Priorities estimated just reinstating the laws in place for the 2009 rules would save about $23 billion.
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The estate tax is currently set to go back to pre-2001 laws in 2013. It warrants some consideration from both sides whether it should be set at the 2009 rules, the current ones, the ones Obama proposed ($3.5 million exemption for individuals indexed for inflation), a hybrid, or the elimination of the estate tax.
For your consideration, the Tax Policy Center found that under the rules for 2009, about half of the tax is paid by large estates. Under President Obama's proposal, 84% of the tax would be paid by estates valued at $10 million or higher. Under the rules in place now, about 90% is paid by these same estates. But estates that are worth over $20 million save on average about $3.5 million.