TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, June 24, 2010

Responsible Estate Estate Tax Act Includes $3.5m Exemption, 55% Top Rate & 10% Billionaire's Surtax

Senators Bernard Sanders (I-VT), Tom Harkin (D-IA), and Sheldon Whitehouse (D-RI) today plan to introduce the Responsible Estate Tax Act, which would provide a $3.5 million exemption, a progressive rate structure with a 55% top rate, and a 10% surtax on billionaires:
  • Exempts the first $3.5 million of an estate from federal taxation ($7 million for couples), the same exemption that existed in 2009. Doing this would mean that 99.75% of all estates would be exempted from the federal estate tax in 2011 alone.
  • Includes a progressive rate structure so that the super wealthy pay more. Under our bill, the rate for the value of the estate above $3.5 million and below $10 million would be 45%, the same as the 2009 level. The rate on the value of estates above $10 million and below $50 million would be 50%, and the rate on the value of estates above $50 million would be 55%.
  • Includes a billionaire's surtax of 10%. Our bill also imposes a 10% surtax on the value of an estate above $500 million ($1 billion for couples). According to Forbes Magazine, there are only 403 billionaires in the United States with a collective net worth of $1.3 trillion. Clearly, the heirs to these multi-billion fortunes should be paying a higher estate tax rate than others.
  • Closes all of the Estate and Gift Tax Loopholes requested in President Obama's Fiscal Year 2011 budget. These loophole closers include requiring consistent valuation for transfer and income tax purposes; a modification of rules on valuation discounts; and a required 10-year minimum term for Grantor Retained Annuity Trusts (GRATS). OMB has estimated that closing these loopholes that benefit the super-wealthy, would raise at least $23.7 billion in revenue over 10 years.
  • Protects family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes. Under current law, the value of farmland can be reduced up to $1 million for estate tax purposes under ยง 2032(a) (Special Use Valuation). Our bill increases this level to $3 million and indexes it to inflation.
  • Benefits farmers and other landowners by providing estate tax relief for conservation easements. Our bill provides tax relief to farmers and other landowners by amending estate tax rules for conservation easements through an increase in the maximum exclusion amount to $2 million and increasing the base percentage to 60%.

Update:

http://taxprof.typepad.com/taxprof_blog/2010/06/responsible-estate.html

Congressional News, Tax | Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341c4eab53ef0133f1b910c7970b

Listed below are links to weblogs that reference Responsible Estate Estate Tax Act Includes $3.5m Exemption, 55% Top Rate & 10% Billionaire's Surtax:

Comments

"Clearly, the heirs to these multi-billion fortunes should be paying a higher estate tax rate than others."

I just have a fundamental problem with that statement.

Posted by: Nathan | Jun 24, 2010 8:56:56 AM

I'll believe this is an intellectually honest proposal if and only if its parameters are indexed for inflation.

Posted by: AMTbuff | Jun 24, 2010 10:41:26 AM

I sure don't.

This seems like a perfectly sensible bill. With an effective $10 million deduction for farms, less than 2% of the farms in Iowa would even theoretically be subject to the tax (scenario of 2,000 acre plus farm held free and clear). The reality is that many of those super farms are corporately owned or burdened with some debt.

An heir to a stupendous fortune pays a bit more than an heir to a modest fortune of "only" 400 million or so, but remember, the IRS Statistics of Income division shows that these ultra-rich persons typically pay only an aggregate 16% federal income tax as the money is being earned.

Posted by: jimharper | Jun 24, 2010 11:07:18 AM

How does this (7 mill for couples) relate to the children of heirs?
... ($7 million for couples),..

and what does this mean? If family has 3 mill in farmland, then the estate can be reduced by 3 mill?
----allowing them to lower the value of their farmland by up to $3 million for estate tax purposes.----

Posted by: Motodom | Jun 24, 2010 12:39:20 PM

To Jimharper: The bill means a couple could leave $7 million for their heirs without paying taxes. It means that if most of their estate is farmland, they can exempt another $3 million from taxes, for a total exemption of $10 million as AMTbuff said.
United for a Fair Economy strongly supports the bill: http://www.faireconomy.org/press_room/2010/new_estate_tax_proposal_in_senate_offers_chance_for_more_broadlyshared_prosperity

Posted by: Lee Farris | Jun 25, 2010 1:10:24 PM

This bill is unfair to wealthy Americans, who should not be penalized (which a death tax rate of up to 65% certainly has the effect of doing) for achieving the American dream of success. The wealthy are being taxed to death (pardon the pun) in our country. I explained why the bill is unfair in a polite and, I'd like to think well reasoned, blog submission yesterday. However, my blog submission does not seem to have been accepted....

Posted by: Bright | Jul 16, 2010 3:48:30 PM