Forbes Magazine recently reported that George Steinbrenner was the fourth billionaire to die this year, meaning that roughly 50% of his estate that otherwise would be subject to estate taxes will pass tax free to his heirs. (If the heirs sell the inherited assets, there can be a capital gain tax that would apply.) Thus, 2010 is a good year for rich people to die. But at a time when the U.S. government is in dire need of revenue, it is forfeiting estate tax revenue that in any other year would be substantial. Forbes estimated that $6.5 billion of estate taxes that otherwise was owed solely from these four billionaires went unpaid. This does not take into account the lost revenue from other millionaires dying in 2010. Congress could attempt to impose the estate tax retroactively although this is becoming less likely as fall 2010 approaches.
Congress is considering various estate tax proposals but most of them pertain to 2011 forward. In 2011, absent Congressional action, there will be only a $1 million exemption amount and a maximum 55% estate tax rate. On July 21, the Senate defeated an amendment by a 59 to 39 vote that would have permanently repealed the estate tax. While one Senator said it is "immoral" for people to work during their lives and pay income tax, and then be subject to an estate tax upon their death, another Senator commented that the amendment was "absurd" considering it would have benefited the very wealthy who comprise less than .5% of the U.S. population.
Also on July 21, estate tax supporters argued that the tax was necessary for economic purposes and to maintain charitable giving. Those supporters argued that an exemption amount of $3.5 million and a 45% tax rate (the figures in 2009) were necessary to offset even greater income tax rates that would likely result without estate tax revenue to the detriment of the middle class.
It is virtually certain that Congress will adjourn for the August recess without any solution. It is becoming ever more likely that the estate tax exemption amount will revert to $1 million in 2011.