If the Obama-Republican tax deal passes, 2011 could turn into the best year yet to be rich, tax wise. The capital gains tax, a key rate for the very rich, will remain at its historically low 15%, while the top ordinary income tax rate will stay at 35%. The 2010 $800 per couple Making Work Pay credit, which wasn’t available to the better off, will be replaced by a Social Security tax cut that will save a two-high-earner couple $4,272 in 2011. Meanwhile, the estate and gift tax regime will become even friendlier to wealthy families.
Friendlier? How could wealth transfer taxes be any friendlier? After all, under the Bush tax cuts the estate tax disappeared in 2010 (for just one year) allowing families of billionaires who died this year, including Yankees owner George Steinbrenner and Metromedia founder John Kluge, to inherit free of federal estate taxes.
True enough. But for a family to benefit from that one year lapse, a (presumably) loved one had to actually die. For 2010, the amount a still breathing rich person can transfer to his kids or grandkids without owing taxes remains the same as a decade before: just $1 million.
By contrast, under the version of the Obama-Republican deal introduced late Thursday by Senate Majority leader Harry Reid, D-Nev., the exemptions from the gift tax, estate tax and generation skipping transfer tax (the tax imposed on gifts to grandkids if their parents are still alive) are “unified”–meaning they’ll all rise in tandem in 2011 to $5 million, from the $1 million or so they would have been next year after the Bush tax cuts expired.