The annual exclusion is, by law, calculated based on the $10,000 exclusion amount
in 1998, then adjusted annually for inflation (based on the federal inflation rate) in
$1,000 increments. For 2007, the annual gift tax exclusion amount was $12,000, but
the true underlying amount for 2007 was $12,660.

The federal inflation rate for the 2008 values was announced at 2.3%, which makes the underlying amount for 2008 equal to $12,951. Therefore, because the underlying amount is less than $13,000 the annual gift tax exclusion for 2008 will remain $12,000.

So thanks to low inflation and a mere $9 shortfall, the entire nation loses out on the
ability to make an additional $1,000 of allowable annual exclusion gifts per donee in
2008. This is a rare occasion where a low inflation environment is not a good thing!