LawyersUSA

A new report by a tax research and advocacy group urges President-elect Barack Obama to revise his plan for reforming the estate tax, saying the plan would be too generous to the wealthy.

Under current law, the top estate tax rate has gradually decreased over the last several years from 55 percent to 45 percent, while the estate tax exemption amount has risen gradually from $675,000 per taxpayer to $3.5 million during the same period.

In 2010, the estate tax will be repealed for one year, before rates and exemptions reset to the pre-2001 levels of 55 percent and $1 million.

Obama's plan would stop the 2010 reset by freezing the estate tax at 2009 levels, meaning that $3.5 million would be exempt from tax – $7 million for a couple – and the rest would be taxed at a 45 percent rate.

The report issued this week by the group Citizens for Tax Justice said that Obama's plan is better than the current law, but still too easy on the wealthy.

"This would be an improvement in the sense that it would prevent the estate tax from disappearing," the report states. "But it would be a regressive and costly giveaway to the very wealthiest families in America, because it would mean that the tax would affect even fewer estates than it does now."

The report, citing statistics from the Internal Revenue Service, notes that less than one percent of estates face estate tax liability. Keeping the reduced estate tax rate in place would give wealthy families inheritance windfalls.

"If we tax earnings from work, it would seem only fair that we also tax transfers of large fortunes to those who do not need to work because of the enormous wealth of their families," it said.

Farm and small business groups disagree, arguing that high estate taxes hit small businesses and family farms the hardest, often forcing families to liquidate their assets to pay off the tax bill after the death of a relative.

The Tax Policy Center estimated in August that Obama's proposal would result in $284 billion in lost revenues over the next decade.

For more on this topic, see "Estate tax hokey pokey: Uncertainty over estate tax reform keeps attorneys and clients in flux."

– Kimberly Atkins