The US state of New Hampshire has as its motto, “Live Free or Die." The US taxpayer may soon adopt a similar “Live Tax-free or Die" mantra when a provision in US tax laws causes a massive jump in the federal estate tax rate.
During his first election campaign, George W. Bush railed against the so-called “death tax." Soon after taking office, Bush and a Republican-led Congress introduced sweeping tax reforms, including a programme that would gradually reduce, and ultimately eliminate, the estate tax.
The American estate tax system sets a flat rate at which estates in excess of a specified value will be taxed upon the death of the estate holder. That rate has decreased for each of the last nine years, and in the 2010, the estate tax will be eliminated altogether. The estate tax reprieve is only temporary, however. In 2011, the reduction expires, and the estate tax rate returns to the original fifty-five percent level.
Many cynical observers speculate that 2010 will bring there will be a spike in the deaths among wealthy estate holders who hope to avoid the estate tax. Perhaps not wanting to see a sudden depletion of the nation’s wealthiest citizens (and most capable campaign fund contributors), the US Senate recently voted to reduce the 2011 estate tax rate to thirty-five percent. Notwithstanding the Senate’s willingness to compromise, estate holders who die in 2010 will be able to pass on one-third more of their estate to their heirs than those who die in 2011.
Americans are renowned for their tax aversion, but in 2010, the world will find out just how far wealthy US taxpayers are willing to go to remain estate tax-free.