Death Tax Compromise Protects Thousands of Estates from the Tax

One of the most debated provisions in the current tax deal between President Obama and the Republicans is over the reinstatement of the estate tax, which was allowed to expire for all of 2010. On January 1st, the estate tax rate is scheduled to rise from the current rate of zero to 55 percent on estates worth more than $1 million. Under the Obama/Republican agreement, the estate tax rate will instead rise to 35 percent on estates larger than $5 million ($10 million per couple).

While the difference between $1 million and $5 million may not seem large to some people, it is remarkable how many estates will be protected from the tax by the higher exemption level. According to an estimate by Congress’ Joint Committee on Taxation, there would be ten times as many taxable estates between $1 million and $5 million under current law (with the top rate of 55 percent) compared to the number facing higher taxes under the compromise deal (with the top rate of 35 percent).

The table below also indicates the number of farm and small business estates protected from the estate tax because of the compromise deal. Should current law be allowed to kick in on January 1st, 2,600 farm estates valued between $1 million and $5 million would be hit with the 55 percent rates. By contrast, 200 farms would be affected by the compromise deal. Similarly, 1,700 small business estates would be effected by current law compared to 200 under the compromise plan.

Ideally, there should be no estate tax, but the compromise plan at least shelters the smallest and most vulnerable farms and small businesses from this onerous tax.