Tax advocacy group Citizens for Tax Justice has released a report urging President-elect Barack Obama to avoid cutting the federal estate tax.
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The group pointed out that new estate tax statistics from the Internal Revenue Service show that the percentage of deaths resulting in federal estate tax liability is below 1 percent nationally and in most states, and continues to fall.
Under the tax cut enacted by President Bush in 2001, the federal estate tax is being reduced gradually over the decade - in other words, the exemption for estates is gradually increasing while the tax rate is gradually decreasing - until it disappears entirely in 2010. Like most of the Bush tax cuts, the gradual changes in the estate tax expire at the end of 2010.
"If Congress simply does nothing, the federal estate tax will be repealed for 2010, but then return in 2011 in a form much closer to what existed at the end of the Clinton years," said the report.
Obama has proposed a change that would prevent the estate tax from disappearing in 2010, but the change would also cut the estate tax below the level it would reach in years after 2010 if Congress simply does nothing.
Some advocacy groups have called on Congress to act before 2010 to prevent the estate tax from disappearing, the report noted. If the estate tax is allowed to disappear, they fear, Congress will find it more difficult to resist lobbyists who will insist that repeal of the estate tax be made permanent.
Obama has proposed making permanent the estate tax rules that will be in effect in 2009 under current law, including the $3.5 million per-spouse exemption. "This would be an improvement in the sense that it would prevent the estate tax from disappearing," said the report. "But it would be a regressive and costly giveaway to the very wealthiest families in America, because it would mean that the tax would affect even fewer estates than it does now."