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Business Title: Baucus Seeks to Prevent Year-End Transfers of Assets to Beat Estate Taxes Dec. 4 (Bloomberg) -- Senator Max Baucus is pushing a proposal intended to prevent wealthy taxpayers from transferring assets to family members before year’s end and pay less in gift taxes than the levy they would face after they die. The Senate today in a procedural vote rejected the measure, introduced Dec. 2 by Baucus, a Montana Democrat who heads the Finance Committee. Under the proposal, the existing 35 percent gift tax would increase to 45 percent for transfer until the end of the year. The Baucus proposal may still become law as part of a compromise to extend Bush-era tax cuts that expire Dec. 31. It would remove an incentive to pass along fortunes to children and grandchildren before year-end to lock in a historically low gift tax rate. Such transfers could represent savings of as much as 40 percent on taxes at death that are scheduled to take effect in 2011. “There are a significant number of people across the country who are contemplating year-end gifts,” said Carol Harrington, head of the estate planning group at the McDermott Will & Emery LLP law firm in Chicago. The Senate’s move “may disperse some people, it may make some people stop and see what Congress is going to do.” The taxation of large estates is one of six major elements being negotiated by the White House and Congress in talks on extending lower tax rates set in 2001 and 2003 on income, capital gains, and dividends. As part of the 2001 law, the estate tax was phased out and allowed to expire for 2010 only. Unless Congress acts, taxes will increase across the board on Jan. 1. Tax-Cut Battle President Barack Obama and congressional Republicans have been locked in a battle for two years over whether to extend tax policies that primarily benefit individuals who earn over $200,000 and couples that earn more than $250,000. Obama said this week said he’s “optimistic” and “confident” that the disagreement will be resolved before the end of the year. Iowa Senator Charles Grassley, a Republican, said Dec. 2 that negotiators are likely to propose a two-year extension of lower income tax rates for all taxpayers, including those with higher incomes. It’s less clear how Congress will resolve the estate tax issue. That levy is set to jump from zero this year to 55 percent on Jan. 1 for fortunes worth more than $1 million at death. Though there was no estate tax this year, Congress retained a 35 percent gift tax to prevent lifetime transfers of wealth from escaping tax as well. Gift Taxes Gift taxes have long been matched with estate taxes to prevent the wealthiest Americans from ducking the Internal Revenue Service after death. Americans can give away a total of $13,000 to as many people as they want in any year, including 2010, without any tax consequence. Gifts to any one person exceeding $13,000 must be reported to the IRS and count toward a $1 million lifetime tax-free allowance. When the $1 million allowance is spent, gifts historically have been taxed at the same rate as estates. This year is the exception. Baucus’s bill, which was rejected in a procedural vote today, sought to reinstate the estate tax retroactively for 2010 using the top 45 percent rate and $3.5 million per individual tax-free allowances that existed in 2009. The tax-free allowance would be increased to adjust for inflation starting in 2011. Taxable gifts made between Jan. 1 and Dec. 2 would face a top tax rate of 35 percent. Gifts made after Dec. 2 would be taxed at 45 percent if the bill language is enacted into law. Capital Gains Tax The heirs of Americans who died between Jan. 1, 2010, and Dec. 2 could elect to pay zero estate tax, although they would face a complicated capital gains tax calculation if they were to sell inherited assets. While the capital gains tax rate generally is 15 percent, gains on sales of collectibles are taxed at a 28 percent rate. Baucus’s bill may figure in a final deal between the White House and Congress on the tax-cut extensions. Harrington said lawmakers would effectively give up revenue by stopping year-end gifts, which is a taxable event. Given the budget situation, she said, the provision may be amended. “People do these things voluntarily” when they decide to pay taxes on gifts, she said. “They’re going to give up a lot of revenue immediately” if the proposal is enacted.
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#1. To: Brian S, all (#0)
'Wealthy' to liberals is anyone that owns their own business.
Obama's first all-by-his-lonesome budget, btw, calls for a $1.17 trillion deficit.
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