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New Estate Tax Policy Proposed By President Obama


February 10, 2015
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Pres. Barack Obama recently proposed a new estate tax policy that could have a substantial impact on what Americans can leave for their heirs.

The president plans to outline the details of the new estate tax policy in his budget plan on Feb. 2, according to Bloomberg. Obama is suggesting that upon death, the federal government levy a capital gains tax – with the top rate being 28 percent instead of the current 23.8 percent – on the amount by which assets have appreciated since they were purchased, according to Bloomberg News. It is worth noting that this approach would affect both the ultra wealthy and also everyday individuals who would otherwise not have enough assets to face any estate tax liability, the media outlet reported. In addition, the new policy would tax a person’s assets whether they were sold or not. If a family bought a home that surged 200 percent in value and then the heir inherited the property, the inheritor would be responsible for the taxes. The new estate tax policy would provide a $200,000 exemption for heirs and a $500,000 exemption for homes, according to the news source. What this means is that if a married couple paid $500,000 for a home that was later worth $1.5 million, the capital gains burden would affect the $500,000 tax base.

Potential revenue boost

Obama’s proposal might provide the federal government with a significant revenue boost, as the estate tax brought in roughly $12.7 billion during fiscal year 2013, approximately half the amount generated before lawmakers passed estate tax cuts in 2001, tax expert Beth Kaufman stated Jan. 20, according to Bloomberg BNA. Between 2001 and 2012, estate and gift taxes saw their top marginal rate decline to 40 percent from 55 percent and their exemptions rise $1 million to the current $5.43 million. Kaufman, a former Treasury Department associate tax legislative counsel, emphasized that these two policies generate substantially less than 1 percent of all tax revenue, and the number of taxable returns fell to fewer than 5,000 in fiscal year 2013, which represents 0.2 percent of the people who passed away in that period.

Impact on families

While the estate tax may not be a huge portion of total revenue, it has the potential to have a substantial impact on families, according to Bloomberg News. “We have a lot of families that own a specific stock, and they’ve owned that forever, and they do not want to get rid of it,” Katherine Dean, managing director of wealth planning at Wells Fargo Private Bank in San Francisco, told the media outlet. “This will have a huge impact on them. Huge.”