Steamboat Springs U.S. Sen. Mark Udall said Thursday that he and other senators are drafting a bill to address an estate tax situation that has some landowners concerned about whether they’ll be able to afford passing on their assets to kin.
The federal estate tax, known by detractors as the “death tax,” is assessed on the value of a deceased person’s estate, above an exempted amount. A significant reduction of the tax is scheduled to expire at the end of this year, meaning tax rates and exemption amounts could reset Jan. 1 to higher levels in place a decade ago.
The heirs of so-called “land-rich, cash-poor” ranchers, or of business owners with large assets but small income streams, for example, could face a tax that is based on the value of those assets and is much greater than their income.
There is no estate tax on the assets of those who die this year. The difference between dying this year and dying next year — as the tax stands — could mean tens, if not hundreds, of thousands of dollars.
“It’s a huge difference as to whether someone passes away Dec. 31 or Jan. 1, 2011, as far as how the estate is treated,” Routt County Commissioner Doug Monger said.
Monger, a rancher, acknowledged that he has a personal stake in the issue he recently met with Udall to discuss. If the estate tax is allowed to expire in its current form, any estate worth more than $1 million will be taxed next year on value in excess of that amount.
Assuming land values of $20,000 per acre, Monger said, any owner of more than 50 acres could have a valuation of more than $1 million and face an estate tax on the remainder.
“The cattlemen and cattlewomen and ranching families have concerns about that,” Monger said. “It affects a lot of people — even more than ranchers.”
The phased estate tax reduction was part of former President George W. Bush’s massive tax cut package in 2001.
Udall, a Colorado Democrat, said Thursday that the situation “is not sustainable.” He said a change is needed to help landowners “keep their lands in their families without worrying about taxes.”
“I believe before the year is out, we will have a tax package that includes extenders, or other adjustments … in the tax code,” he continued.
Udall said work to draft a bill is ongoing and that he could have an update next week.
President Barack Obama’s administration made a proposal last year that would have reinstated the estate tax’s 2009 levels — and implemented the tax in 2010 — but that proposal was never made law, and the issue remains undecided.
Udall said exempting estates valued at less than $3.5 million for one person, or $7 million for a couple, could make sense.
“I think that would be a smart way to put in place a permanent fix for the estate tax,” he said.
He acknowledged that tax changes could be “one of the last pieces of business” Congress takes on this year. The changes could present some legislative challenges, he said, as Congress works to reduce the national deficit and address the expiration of Bush-era tax cuts.
Paul Strong, an accountant, former Steamboat Springs City Council president and active member of the local Republican Party, didn’t mince words Thursday when joking about tax cuts set to expire Dec. 31.
“This is the year when if you’re old and rich, you kill yourself,” Strong said.