It is getting down to crunch time. In about 10 weeks the Federal Estate Tax is scheduled to be eliminated . . . . for one year!
Unfortunately, this planning nightmare is no closer to being resolved then it has since the bill that created it was passed and signed into law in June of 2001.
As an observer of politics, I recognize that the Estate Tax is a political football that both sides are using to score points and earn significant campaign contributions. Although there hasn't been any significant movement on this issue since the budget resolution debate, the current conventional wisdom is that a one year extension of the current exemptions and rates will be passed this year to prevent the one year elimination of the estate tax. I discussed this scenario last year. However, such a bill has not actually materialized, meaning that the bill needs to be introduced and assigned to a committee or introduced as an amendment. This bill is revenue positive; however, it is unlikely that it will be slipped in to one of the health care bills since the few Republican votes for health care would likely be unwilling to vote for it if it included an estate tax increase.
Assuming that a one year extension is passed, the estate tax could be a hot button topic in next years mid-term elections. The Republicans will not want to compromise from their full repeal position prior to the election, while the Democrats will find it difficult to pass a bill due in part to budgetary constraints and the image of passing a tax cut for the wealthy in an election year. Congressman John Campbell of California discusses this from a slightly different angle in his recent blog post. So, a permanent bill, if there is one, would likely have to come some time after the election in early November of 2010 and the congressional holiday break at the end of the year. Not alot of time for such a complicated issue.
If an extension is not passed this year, the political ramifications are even more complicated. Congress could attempt to pass an extension, but that would be a tax increase and would likely not be effective retroactively to the beginning of 2010. Meaning we could end up with two different sets of rules next year depending on the date of death. There has been some speculation that the "powers that be" may be willing to just let the law run its course. From a politician perspective this would give them at least another year to do nothing. Doing nothing has been working for them for nearly nine years!
I say that in jest, but the truth is that public opinion on the estate tax appears unsettled and is likely to remain so until there is a national debate on it. Most people's eyes glaze over at the prospect of a tax policy debate, so they are unlikely to pay attention until they feel personally impacted by the tax. When compared to the recession, jobs, the deficit, the environment, defense, and health care; estate tax policy is just a low priority issue.
Now it is your turn to make a prediction for the future of the estate tax. Please feel free to leave your guesses as comments below. I will start us off with my guess: We will see the return of the $1 million exemption and the Clinton era estate tax rates in 2011. In 2011 and early 2012 baby boomers and others will start to realize that their inheritances and estates are at risk and will propel the estate tax into the national spot light as a campaign issue in the 2012 presidential election.