On July 14, US Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) released a press release with a proposal to “permanently reform the federal estate tax.”
Under the current scheme, there is no federal estate tax for 2010 but decedents’ estates for this year are subject to a set of complicated capital gains rules. Beginning in 2011, the personal exemption will revert to $1 million and assets over that amount will be taxed at a flat 55% rate.
Under the bipartisan proposal, the exemption would be increased to $5 million phased in over 10 years and indexed for inflation. The taxable rate would be a flat 35%. Basis for assets would be “stepped up” at death, just as it was before 2010.
The proposal also includes an alternative election for 2010 that would allow deceased taxpayers to either retain this year’s estate tax rate (0%) together with “carry over basis” (as opposed to “stepped up basis”) or file under the provisions of the new bill using the new rate (35%) together with “stepped up basis.”
The proposal has received lukewarm reviews so far (though, admittedly, it’s just been a day since the official proposal has been released). A key endorsement did come from the AFBF (American Farm Bureau Federation) which has voiced its support of the Lincoln-Kyl plan. AFBF President Bob Stallman wrote a letter to Senate Majority Leader Harry Reid (D-NV) urging him to consider the proposal.
One of the initial problems with the Lincoln-Kyl proposal has not gone unnoticed: the proposal would generate less revenue than Obama’s proposal. Under the proposal, the Senate Finance Committee must offset the difference in revenue though the details of how that’s going to happen are unclear.
But hey, maybe some progress? I mean, it’s better than the “let’s do nothing and keep them guessing” plan that we’ve gotten used to…Want more taxgirl goodness? Pick your poison: You can receive posts by email, follow me on twitter (@taxgirl) hang out with me on Facebook and check out my YouTube channel.