On Wednesday, Rep. Jim McDermott (D-WA), Chairman of the House Ways and Means Subcommittee on Income Security and Family Support, introduced the Sensible Estate Tax Act of 2009. The bill would result in an estate tax that is more progressive than what either the Obama administration or Republican leaders have proposed. It would exempt the first $2 million in assets in an estate per person, or $4 million for a married couple. It would impose a 45 percent estate tax on the taxable amount of an estate up to $5 million, 50 percent on the taxable amount between $5 and $10 million and 55 percent on the taxable amount in excess of $10 million.
Under current law, the estate tax is scheduled to disappear in 2010 and then reappear in 2011 at pre-2001 levels (meaning a $1 million per-spouse exemption and a top rate of 55 percent). President Obama's budget blueprint proposed to make permanent the 2009 rules which include an exemption of $3.5 million per spouse and a top rate of 45 percent.
The McDermott bill would index the exemptions for inflation and includes other significant changes. It would make the exemption portable (meaning that one spouse could also use the other spouse's exemption), and it would reunify the gift and estate taxes. (Under current law and the administration's proposal, the gift tax exemption would remain at $1 million.) The McDermott proposal would, importantly, bring back the credit for state estate taxes, which is a source of revenue for the states.
The Joint Committee on Taxation estimates that the McDermott proposal would cost $202.8 billion over ten years (compared to current law), about 20 percent less than the President's estate tax proposal, which is estimated to cost $256 billion over ten years.
Estate taxes affect less than one percent of Americans. In 2007, when the estate tax exemption was at the $2 million level that McDermott proposes to make permanent, only 0.7 percent of estates were liable for the tax.