Following the November elections, Congress is expected to embark on a major tax and spending debate that may have significant fiscal policy implications for years to come. In addition to expiring Bush-era marginal tax rates for individuals, expiring business tax incentives, steep budget cuts and a scheduled increase in the federal debt limit, Congress must act to avoid a major increase in the estate tax.
If current estate tax rates are allowed to expire after 2012, small and mid-sized family-owned businesses seeking to transfer between generations could be subject to a potentially crippling tax hike.
In a broad tax bill passed in late 2010, Congress set the estate tax rate at 35 percent with a $5 million exemption per individual. After 2012, these levels will revert to pre-Bush-era levels (55 percent with a $1 million individual exemption) unless Congress passes legislation by the end of the year to extend the current rates.
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