TAX NEWS - 2010

Estate Tax: Sanders Estate Tax Proposal Would Hit Wealthy Harder

Vermont independent Sen. Bernie Sanders and three Senate Democrats Thursday proposed an estate-tax plan that would hit wealthier taxpayers harder than another proposal on the table.

The estate tax lapsed temporarily on Jan. 1 after the Senate failed to extend it last year. If lawmakers do nothing, the tax will resume in 2011 with a 55% rate on estates above about $1.2 million. Last year, estates of more than $3.5 million for an individual were subject to a 45% tax.

Mr. Sanders and his co-sponsors said, "It's time for multi-millionaires and billionaires to pay their fair share."

Under the proposal, as in 2009, the exemption would be $3.5 million for an individual, or as much as $7 million for a couple, with a tax rate of 45%. But estates with taxable assets between $10 million and $50 million would pay a 50% rate, and estates valued above $50 million would pay 55%. A further 10% surtax would apply to assets above $500 million.

The changes would be retroactive to Jan. 1 of this year.

"The Sanders proposal is one extreme in the current debate," said Clint Stretch, an analyst at Deloitte Tax. "The challenge for the Senate is whether the members can agree to anything at all."

Another estate-tax proposal, offered by Democratic Sen. Blanche Lincoln of Arkansas and Republican Sen. Jon Kyl of Arizona, has been stalled since attracting a flurry of support in May. The new regime would not begin until 2011, when the tax rate would be 44% after an individual exemption of $3.5 million. But after a 10-year phase-in period, the rate would be 35% after an individual exemption of $5 million.

The Sanders plan was co-sponsored by Democratic Sens. Tom Harkin of Iowa, Sheldon Whitehouse of Rhode Island and Sherrod Brown of Ohio.

Iowa Sen. Charles Grassley, the highest-ranking Republican on the Senate Finance Committee, said "I welcome the other side's finally putting a proposal on the table."

Other provisions in the Sanders proposal would follow recommendations set forth in President Barack Obama's 2011 budget. They include requiring a 10-year minimum term for Grantor Retained Annuity Trusts, or GRATs, and changing rules on valuations and discounts used in gift and estate planning.

In a nod to farmers, the bill would allow them to reduce the value of farmland by $3 million for estate-tax purposes, an increase over the current reduction of $1 million. It would also allow farmers and other landowners more generous estate-tax treatment of conservation easements by increasing the maximum exclusion to $2 million.