The first presidential debate of 2016 was the most watched debate in United States’ history. The two candidates hold very different positions from each other and no more so than on the topic of the federal estate tax. The federal estate tax has a very checkered history in American politics, often serving as a talking point between the two biggest parties in Congress to emphasize how different each party is from the other and what purpose the federal estate tax should serve. No matter which candidate wins the office of the president, the federal estate tax is likely to change in the future.
Up and Down and Sometimes Not At All
Of course if any changes are made to the federal estate tax, it will be in line with its history. The only constant of the federal estate tax is that it is constantly changing. The federal estate tax was an early part of our nation’s history, but was repealed and implemented again over the decades. It was not until 1916 that the modern federal estate tax takes root and has been with us ever since.
However, even if the federal estate tax has been with us since 1916, that does not mean it is the same as it was back then. The federal estate tax has two main components: which estates are taxed and at what rate are they taxed at. Currently, any estate under $5.45 million is exempt from the federal estate tax. Any estates over that amount are taxed at a rate of 45 percent. These amounts and tax rates have fluctuated wildly and rapidly over the past two decades and the future is likely to hold much of the same.
How the Presidential Candidates Would Change the Federal Estate Tax
Presidential candidate Ms. Clinton would seek to increase the maximum tax rate to 65 percent from the current rate of 45 percent if elected. This rate would apply only to the estates that are over the federal estate tax exemption amount. However, a key component that has been put forward by Ms. Clinton is to also eliminate what is known as the ‘step-up’ basis rule that allows beneficiaries to receive inherited property, like real estate and stocks, with a better tax basis at no penalty to the inheritor. This proposed change could cause quite a few headaches for inheritors.
If elected, presidential candidate Mr. Trump would seek to eliminate the federal estate tax in its entirety. This means that it would not matter how much a person’s estate was worth, it would not be taxed at any rate.
Only By an Act of Congress
It is important to remember that these are just proposals by two presidential candidates. Only an act of Congress can change the federal estate tax. Therefore no matter who gets elected, in order to change the federal estate tax in any way, the President’s proposal would still have to work its way through Congress and be approved.
See Related Posts:
Keeping Your Life and Assets Private