The federal inheritance tax rate will jump to 55 percent in 2013 unless Congress acts. Republicans and Democrats disagree on the best plan. But a stalemate will result in higher inheritance taxes than either party wants.
The way Congressional Republicans see it, farmers will have to sell their land and small businesses will have to put their firms on the auction block if nothing is done to prevent the inheritance tax from rising next year.
Their solution: completely end what they call “the death tax.”
But, on the other side of the aisle, Congressional Democrats view eliminating the tax as yet another gift to the ultra-wealthy. Under President Obama’s plan, the rate would actually rise from current levels.
Unless the two sides can find a common ground, the estate tax will rise far higher than either party's proposal. The change in estate tax rates is one of several tax law changes slated to occur in January, when the Bush era income tax cuts will expire.
Currently, the inheritance tax is 35 percent with a $5 million exemption per estate. On January 1, the rate jumps to 55 percent with a $1 million exemption.
According to Republicans, citing the non-partisan Joint Committee on Taxation, this would increase the number of estates that would pay the tax from 3,600 to 55,200.
“Remember, Americans work all their life paying income taxes, property taxes, sales taxes—only to have the government raid their farms, ranches and small businesses when they pass away,” said Utah’s Sen. Orin Hatch (R), the ranking member of the Senate Finance Committee in a statement.