Estate and Gift Tax (Death Tax)

Permanent repeal of the estate tax ("death tax") is a priority. The current estate tax system can deplete the estates of those who have saved for their entire lives, force family businesses to liquidate and lay off workers, and motivate people to make financial decisions for estate tax purposes rather than for business or investment reasons.

Family-owned businesses should not be punished because they are successful or because their owners die. The United States is the land of opportunity, encouraging free enterprise and rewarding entrepreneurs. The estate and gift taxes run contrary to this basic philosophy.

Background

Death tax repeal--phased in over a 10-year period--was approved as part of the Economic Growth and Tax Relief Reconciliation Act (ETGRRA) of 2001 signed into law (Public Law 107-16) on June 7, 2001.

The measure would significantly raise the unified credit exemption from $675,000 to $3.5 million and would protect heirs of family businesses and farms that are land or asset rich and cash poor from having to sell the firm to pay taxes.

The estate gift and generation-skipping transfer tax is very complicated and planning can be very difficult and expensive--all for a tax that currently generates little more than 1% of the total federal budget. Nonetheless, the maximum marginal tax rate on estates can still effectively be a stifling 60%.

EGTRRA 2001 reduced the impact of the estate tax on most estates by raising the exemption amount while simultaneously reducing the tax rate over a period of time, eventually repealing the estate tax for one year in 2010. In 2011, without Congressional action, the exemption amount would have decreased to $1 million/spouse ($2 million/couple) and transfers in excess of this amount would have been subject to a rate of 55%.

Congress passed temporary estate tax relief in the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the Temporary Relief Act)," in December 2010. Pursuant to the Temporary Relief Act, the exemption amount is $5 million/spouse ($10 million/couple) and the top estate tax rate is 35%.

The temporary estate tax relief expires on December 31, 2012, after which the exemption amount is reduced to $1 million/spouse ($2 million/couple), and the maximum estate tax rate is 55%.

Chamber Position

The U.S. Chamber of Commerce supports full repeal of the estate tax. Absent full repeal, the Chamber supports estate tax legislation that would make the 35 percent rate and $5 million ($10 million/couple) exemption permanent.


Resources:

Chamber Facts: Why Congress Must Act Now to Provide Estate and Gift Tax Relief