One of the apparent hold-ups in the Senate negotiations on the "fiscal cliff" is a dispute over the estate tax.
Americans pay the estate tax when they inherit money or property
beyond a certain threshold. According to a 2010 law, the estate tax currently exempts the first $5 million of inheritance and taxes the remainder at 35 percent.
Republicans want to preserve this arrangement, but Obama wants to make it less generous, reducing the exemption to $3.5 million and taxing the remainder at a 45 percent rate.
Though it is apparently creating fireworks in the negotiations, the estate tax affects relatively few people each year, according to the non-partisan Tax Policy Center.
About 99.9 percent of deaths do not involve people with estates large enough to be taxed. Because of the high threshold, only 3,500 households are set to pay the estate tax this year. Because it mainly affects the ultra-wealthy, the average tax paid is estimated at $3.3 million.
Under the Republican proposal, 3,800 people would pay the estate tax year, also near an average of $3.3 million. The GOP proposal would raise $182 billion for federal tax coffers over the next 10 years.
Under Obama’s proposal, 6,500 people would pay the estate tax next year, with an average payment estimated at about $3 million. The president’s proposal would raise $284 billion in tax revenue over the next 10 years.
No action by Congress would send the estate tax back to what it was in the 1990s – with a $1 million exemption and 55 rate percent for the remaining share. That would affect more than 40 million Americans.
While Democrats generally prefer expanding the estate tax, some members of the party from farm states prefer the higher threshold. Republicans in the past have proposed getting rid of the estate tax, calling it the “death tax.”