By Hugo Gye
PUBLISHED: 16:54 EST, 20 July 2012 | UPDATED: 17:43 EST, 20 July 2012
The proportion of inheritance money claimed by the federal government will climb from 35 per cent to 55 per cent.
Moreover, a reduction in the threshold at which the tax becomes payable means that the number of people caught in its net is set to fly up by a factor of 16.
The 55 per cent rate will be a return to the situation which prevailed in the 1990s, before George W. Bush’s sweeping tax reform bill.
Along with well-known measures to reduce the rate of income tax, whose forthcoming expiry is currently causing a political fight, were a host of more minor tax cuts.
One of these was a gradual reduction in estate tax, which fell year-on-year throughout the last decade before being suspended entirely for 2010.
For the last two years, the level of the tax has stood at 35 per cent, payable on any inheritance above $5million.
As well as hiking the rate, the government is set to reduce the tax-free allowance on estates to $1million.
An additional rate of five per cent will apply to estates between $10million and $17million, adding up to a top rate of 60 per cent.
This reduction in the level at which the tax is payable means that the estates of 52,500 people will be liable to pay in 2013, up from just 3,300 this year, according to Americans for Tax Reform, a conservative think-tank.
In addition, another 60,000 more bereaved families will have to file estate tax returns to work out if they are liable.
Although only two per cent of estates will be liable for the tax even after the new measures take effect, ATR argues that it will cause wide-ranging damage to the economy.
A high inheritance tax encourages elderly people to retire early and spend their money rather than saving it and investing in businesses.
However, proponents of the tax might well see this as a good thing, given that the sluggish economic recovery is thought to be partly the result of a lack of consumer demand.