Uncertainty over the ultimate fate of the federal estate tax has lingered since passage of President Bush’s tax cuts in 2001.  Under the current legislation, the estate tax is progressively reduced to zero by 2010 at which time the estate tax disappears—only to return the following year at the original 55% rate unless the Congress makes the estate tax repeal permanent.  Following President Bush’s re-election in 2004, them Republican controlled Congress sought aggressively to make the first-term tax cuts permanent.  However, consideration of the issue has been waylaid in the current Congress as a result of concerns over the growing fiscal budget deficit due to mounting costs associated with the war in Iraq and hurricane relief following Hurricane Katrina.  Fiscal conservatives have also made permanent repeal of the estate tax more tenuous, particularly as the ultimate cost of any repeal remains a highly debated issue.  Government estimates indicate that repeal of the estate tax would cost $290 billion of ten years.  Lobby groups opposing repeal of the estate tax estimate the cost in excess of $975 billion.  The true cost is likely to lie somewhere between these estimates.

Valuation Brief–January 2006