Year End Tax Reform Controversy Contines

On Monday, December 6, President Obama announced that he had reached a compromise with the Republican Senators for a two year extension of the Bush-era tax cuts. The projected estate tax exemption would be $5 million per citizen with an effective tax rate of 35% over and above $5 million ( down from the scheduled $1 million exemption and a 55% tax rate scheduled to take effect on January 1, 2011). In exchange the unemployment insurance benefits (including a 2% reduction in payroll tax, from 6.2% to 4.2%), would become effective in 2011.

Almost immediately this compromise drew fire from both sides of the aisle. For example, Republicans were uneasy awaiting details of the plan. At the same time some Democrats have announced their opposition to the passage of this legislation. This is not a done deal.

All we can suggest is that clients stay tuned for the latest developments. No doubt a $5 million dollar exemption would be welcome news to 99% of all Americans who would not be bothered with Federal Estate Taxes. But, if Congress fails to act, those Americans with estates over 1 million dollars may wish to avail themselves of some gift giving opportunities in 2010. The shopping days in December are rapidly coming to a close.