While Senate Finance Committee Chairman Max Baucus and other Democrats in Congress are busy remaking the one-seventh of the U.S. economy that is health care, they left an untold number of American families in chaos by failing to move on what should have been a simple act: extension of the estate tax exemption.

At midnight on Dec. 31, the 45 percent tax on estates above $3.5 million for individuals went to zero. How can that be a bad thing? Two reasons. One, the favorable capital gains treatment for assets passed to heirs also expired. And, two, years of estate planning based on the existence of the tax are now virtually useless.

This is an unconscionable dereliction of duty by Congress that imposes unnecessary harm on Americans who have done their best to follow the law and pass the fruits of a lifetime of work to their heirs. Never mind the ghoulish calculus it imposes on families of whether to die now or later.

Oh. And Congress also delivered another New Year's gift to Americans by failing to enact its annual "patch" to the insidious Alternative Minimum Tax to prevent it from hitting more and more middle-class taxpayers.

Sen. Baucus and other congressional leaders have pledged to quickly revisit these and other critical tax questions -- which also have major implications for the already out-of-control deficit.

But there is no way to roll back the uncertainty of allowing the estate tax to lapse. Families are left with just one option: plan for multiple outcomes.

When the estate tax reforms were enacted in 2001, estates of just $675,000 and above were subject to a 55 percent tax. Each year since, the amount exempted increased, reaching $3.5 million in 2009 before expiring in 2010. In 2011, under current law it would return to 55 percent for estates over $1 million.

Most experts expected Congress to set the exemption at $3.5 million, at least temporarily. But now, no one knows what to expect. Rolling back tax changes retroactively to Jan. 1 is problematic. And facing huge budget deficits and in a mood to tax anything and everything, Congress could decide on a $1 million limit, which in California is a modest tract home and retirement savings.

 But, then, this latest failure is all part and parcel of the political arrogance so often on display in the current Congress.


Brad Bollinger is Business Journal editor in chief and associate publisher. He can be reached at 707-521-4251 or bollinger@busjrnl.com.