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$5 Million Estate Tax Exemption Part of Obama Tax Deal

  • December 8th, 2010

A temporary resolution to the question of the federal estate tax is a key part of the tax cut deal President Obama has struck with Congressional Republicans.

The deal, which was hammered out after Republicans said they would let tax cuts for the middle class expire and block unemployment benefits if the Bush tax cuts for the wealthy were not preserved, includes a provision exempting heirs of those with estates of less than $5 million from paying any federal estate tax. Estates over that amount would pay a maximum tax rate of 35 percent. The proposed exemption and rate would be in effect for two years and are what Senate Republicans have been proposing for years as an alternative to outright repeal of the estate tax.

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The estate tax has been repealed entirely during 2010, but is scheduled to return to pre-Bush tax levels in 2011, with a $1 million exemption and a 55 percent rates. In exchange for preserving tax cuts for the wealthy for two years, President Obama extracted concessions from Republicans on unemployment benefits and other tax cuts for the middle class.

Many Congressional Democrats are not pleased with the President's deal, and the agreement on the estate tax is particularly unpopular. President Obama himself said, "Republicans have asked for more generous treatment of the estate tax than I think is wise or warranted." Late last year, the Democratic-controlled House passed a bill keeping the estate tax at its 2009 levels -- a $3.5 million exemption and a 45 percent rate -- but the initiative died in the Senate.

Senate majority leader Harry Reid (D-NV) suggested that negotiations on the tax deal are not over. "This is only a framework," Reid said. "It's up to the Congress to pass it. Some in my caucus still have concerns."

Nevertheless, according to the New York Times, "the package seemed likely to win approval provided that Republicans vote for it in big numbers, as party leaders predicted they would."

Defending the deal at a news conference, President Obama compared the Republicans to hostage-takers. "I've said before that I felt that the middle-class tax cuts were being held hostage to the high-end tax cuts," Obama said. "I think it's tempting not to negotiate with hostage-takers, unless the hostage gets harmed. Then people will question the wisdom of that strategy. In this case, the hostage was the American people, and I was not willing to see them get harmed."

Last Modified: 12/08/2010

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