Estate tax could be more generous to wealthy under Obama-GOP deal

Former President Bill Clinton says the tax cut deal President Barack Obama negotiated with Republicans is the best bipartisan deal possible. Clinton and Obama made a surprise appearance together in the White House briefing room.
By Zachary A. Goldfarb
Washington Post Staff Writer
Friday, December 10, 2010; 10:05 PM

One part of the tax deal between President Obama and congressional Republicans stands out because it would make the tax code even more generous to the wealthy than it was during the Bush era: the estate tax.

The focus of the debate between Obama and Republicans in recent weeks centered on whether to extend the Bush income tax cuts for the wealthy in addition to the middle class. Republicans won not only on that measure, but also on a proposal to reduce taxes on estates.

Under the proposal, individuals would be able to pass on $5 million in assets tax-free to their heirs. Above that, estates would be taxed at a top rate of 35 percent. The tax would affect the estates of people who die in 2011 and 2012 and a small portion of those who die or have died this year. The measure expires at the end of 2012.

Democrats favor a less generous approach. They want to resurrect the 2009 estate tax, which carried a $3.5 million exemption and a top rate of 45 percent. Senate Democrats are now reluctantly supportive of Obama's proposal. But House Democrats are mulling an effort to scale it down, congressional aides say.

There is no estate tax on the books for this year. The Bush administration began phasing out the tax in 2001 - a step long favored by Republicans, who called it a "death tax." This year, it finally disappeared.

With the growing federal deficit, many analysts on both sides of the aisle agree that the estate tax's complete elimination is unlikely. The nonprofit Tax Policy Center estimates that the tax generated $14 billion in revenue in 2009.

The lack of an estate tax this year has already benefited the heirs of at least two billionaires, including oil tycoon Dan L. Duncan, whose estimated net worth was $9 billion, and Yankees owner George Steinbrenner, whose estimated worth was $1.15 billion.

In the unlikely scenario that Congress is unable to pass a deal, the estate tax would rise sharply next year. Current law sets a 2011 tax of 55 percent on estates worth more than $1 million.

Relatively few tax filers would be affected by the estate tax under the proposed deal - just 3,600, according to the Tax Policy Center. They would pay a total of $11.3 billion in estate taxes.

Under the estate tax preferred by many Democrats, 6,500 estates would be taxed, raising $18 billion for the government.

A who's who of progressive organizations, including key labor unions, blitzed lawmakers with letters this week arguing against the more generous estate tax.

White House press secretary Robert Gibbs said that Obama doesn't favor the more generous estate tax but that it was necessary to seal a deal with the GOP. "That's something the president is no big fan of," Gibbs said at a briefing this week. "This is a game of calculus and physics."

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