This article was co-authored with Naomi Goldberg of the Williams Institute.
Yesterday the House of Representatives passed the "Permanent Estate Tax Relief for Families, Farmers, and Small Businesses," which made permanent the current estate tax provisions -- estates that exceed $3.5 million are subject to a 45% tax rate. Now the Senate begins discussion. Without quick Congressional action, that tax will be repealed entirely in 2010 and then return at a 55% tax rate in 2011 on any estate valued at over $1 million.
All of the proposals being circulated in Congress to address the issue, have titles that assert they provide estate tax "relief." However, one group that none of the proposals relieve from an unfair tax burden is hundreds of thousands of same-sex couples. Currently, when one member of a same-sex couple dies, regardless of their legal marital status, there is no possibility for a spousal exemption from federal tax, a benefit that all different-sex married couples enjoy. A surviving same-sex spouse is required to pay taxes (currently 45%) on any amount over the current exemption rate (currently $3.5 million).
A recent study conducted by the Williams Institute at UCLA Law School found that same-sex couples who are affected by the estate tax are assessed an average of $3.3 million more in taxes upon the death of a spouse than comparable different-sex married couples. In 2009, this study estimated that the estate tax penalty will cost same-sex couples $237 million and nearly $620 million in 2011, if the exclusion limit falls back to $1 million.
Talk about a group that needs relief from an unfair tax burden: if current estate tax law is not changed, by 2011 the estate tax disadvantage will have cost same-sex couples more than $3.5 billion over the past decade.
This additional tax burden exists even though a number of states have chosen to extend rights to couples through non-marital forms of recognition or by extending marriage to same-sex couples. These states have changed their inheritance and estate tax laws to allow same-sex couples to pass on their wealth upon death. In some of these states, elderly different-sex couples who aren't married are also permitted to pass on wealth to their surviving partners. But because the federal government refuses to recognize these legal relationships, such couples are vulnerable to heavy taxes when they do pass on their wealth to their partners and children after their death.
Prior to 1981, there was no unlimited spousal exemption. It was created by Congress as a way to help couples care for one another and to ensure that surviving spouses weren't faced with large tax bills that might, for example, result in them losing their homes after the death of their spouses. And yet, same-sex couples and elderly unmarried couples still face this unfair tax burden.
In addressing the estate tax this year, Congress should take the opportunity to lift the unfair burden placed on same-sex couples and their families. Providing estate tax relief to all American families would be easy and doesn't require federal recognition of same-sex marriages. By simply respecting the changes in state law that have provided a right of inheritance to unmarried partners, Congress could change the tax regulations to extend the unlimited spousal exemption to non-marital partners. Alternatively, Congress could extend the spousal exemption to persons meeting a federal definition of a domestic partner, an approach that has been used to grant some benefits to federal employees.
In an effort to avoid the repeal of the estate tax in 2010, Congress will likely soon be taking action on this issue. Doing so creates a unique opportunity to make a change that would allow same-sex couples around the country to care for their loved ones after death under the same rules and regulations as their married different-sex counterparts. For these couples and families, the relief would not just be rhetorical, but real.