President Obama’s proposal to keep the exemption level for the gift tax below that of the estate tax may discourage evasion, but it significantly adds to the complexity of the tax code, the Joint Committee on Taxation said in an Aug. 16 analysis.

JCT’s analysis of the president’s fiscal year 2011 budget proposal noted that the reinstatement of the $1 million exemption level used in 2009 can complicate wealth transfer tax planning and raises administration issues.

Critics of the proposal argue that the gift tax exemption should again be matched to the $3.5 million estate tax exemption—just as it was before 2004—to keep individuals from engaging in complicated and costly planning to avoid the gift tax, JCT said.

“They argue that the lower gift tax exemption (and resulting higher cost of the gift tax) could encourage taxpayers to create complicated long-term trusts at death designed to avoid gift tax on transfers to successive generations. They further argue that the lower gift tax exemption will encourage taxpayers to delay transfers until death,” JCT said.

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