NCREASING ESTATE AND GIFT TAX EXEMPTIONS The impact of estate and gift taxes on the transfer f interests in small businesses could be substantially o remove many small businesses or interests therein from A number of bills have been introduced to increase the Federal state tax exemption in an attempt to compensate for the effects -inflation. Recently, Senator Curtis (R-Neb.), ranking minority ember of the Finance Committee, has introduced a bill (S. 1173) increase the estate tax exemption to $200,000. The estimated venue loss is about $2 billion. / Bureau of Labor Statistics Consumer Price Index for Urban ger Earners and Clerical Workers, U.S. City Average, all items ries A (1967 equals 100). upon transmission. Presuming the 50 percent marital deduction applied, a net estate of approximately $280,000 could be passed without incurring Federal estate tax. About 81 percent of the estate tax returns filed in 1972 on which some tax was payable involved gross estates under $300,000. */ The revenue loss from an increase in the estate tax exemption to $140,000 in 1972 would have been approximately $806 million, or about 19.4 percent of the more than $4.1 Billion in estate taxes levied in that year. Quite naturally, an expansion of the estate tax brackets to allow for inflation would have an additional effect on revenues but would also assist in the preservation of small businesses from liquidation or sale upon the death of the principal owner. OTHER ESTATE AND GIFT TAX CHANGES 1. The Marital Deduction. A frequently recommended estate tax revision is to allow a 100 percent marital deduction rather than the current 50 percent deduction. If a husband and wife are considered one economic unit, and often in small businesses the wife may be significantly responsible for the operation and success of the business, then there would seem to be no logical reason to levy death taxes on this economic unit in two stages. At present, if the first spouse to die leaves his entire estate to the survivor, half of the estate is subject to tax at the time of the first death. #7 Internal Revenue Service; Statistics of Income Tax Returns." Upon the death of the surviving spouse 100 percent of the 2. Integrating Estate and Gift Taxes. An unknown but probably large number of persons who die leaving taxable estates never make a taxable gift during life and thus lose the benefit of the $30,000 lifetime gift tax exemption. Many such persons are undoubtedly small businessmen who were unable or unwilling to give away part of their business during their lifetime. Suggestions for change in this area range from an overall integration of the estate and gift tax (both rates and exemptions) to merely allowing the estate of a decedent to utilize whatever portion remains unused of his lifetime gift tax exemption. The latter approach would provide a greater degree of equality between those persons who made intervivos gifts and those who did not. However, since there is a decided tax advantage in passing property by gift rather than by will or intestate succession, true *7 It is realized that these comparisons are crude because no allowance can be made for consumption in the estate of the second spouse or of the effect of the $60,000 estate tax exemption on the absolute amount of taxes paid in each spouse's estate. It is clear, however, that the overall amount of the estate tax paid by a family unit would be somewhat less if a 100 percent marital deduction were in effect. upon transmission. Presuming the 50 percent marital deduction applied, a net estate of approximately $280,000 could be 81 percent of the estate tax returns filed in 1972 on ex du estate tax revision is to allow a 100 percent marital deduction | rather than the current 50 percent deduction. If a husband and wife are considered one economic unit, and often in small businesses the wife may be significantly responsible for the operation and success of the business, then there would seem to be no logical reason to levy death taxes on this economic unit in two stages. At present, if the first spouse to die leaves his entire estate to the survivor, half of the estate is subject to tax at the time of the first death. sin exem Internal Revenue Service; Statistics of Income Tax Returns." Upon the death of the surviving spouse 100 percent of the 2. Integrating Estate and Gift Taxes. An unknown but probably large number of persons who die leaving taxable estates never make a taxable gift during life and thus lose the benefit of the $30,000 lifetime gift tax exemption. Many such persons are undoubtedly small businessmen who were unable or unwilling to give away part of their business during their lifetime. Suggestions for change in this area range from an overall integration of the estate and gift tax (both rates and exemptions) to merely allowing the estate of a decedent to utilize whatever portion remains unused of his lifetime gift tax exemption. The latter approach would provide a greater degree of equality between those persons who made intervivos gifts and those who did not. However, since there is a decided tax advantage in passing property by gift rather than by will or intestate succession, true *7 It is realized that these comparisons are crude because no allowance can be made for consumption in the estate of the second spouse or of the effect of the $60,000 estate tax exemption on the absolute amount of taxes paid in each spouse's estate. It is clear, however, that the overall amount of the estate tax paid by a family unit would be somewhat less if a 100 percent marital deduction were in effect. |
