Wednesday, May 18, 2011

Renewed Prospects for Estate Tax Legislation

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The approaching dog days of a Washington summer seem to have reminded Congress that it must act on the estate tax. Recent activity in both houses of Congress has raised the hopes of those who expect a decision before the tax is reinstated at its 2001 levels on January 1, 2011. Here is a chronology of recent events:

July 14, 2010: Senators Kyl (R-Ariz.) and Lincoln (D-Ark.) introduce their long-awaited estate tax compromise, which is seen as a plan that may garner sufficient support in the Senate to overcome the 60-vote hurdle. The plan would include a $5.0 million individual exemption to be phased in over 10 years and a top rate of 35%. Procedurally, they introduce this as a motion to recommit to the Finance Committee the small business lending bill pending before the Senate. They are not deterred by a June 24 statement  by Senate Majority Leader Harry Reid (D-Nev.) that he will not allow any estate tax amendments to be added to the bill.

July 19, 2010: Senator DeMint (R-S.C.) introduces an amendment  to the same bill that would permanently repeal the estate tax after 2010. In a news release, the Senator describes the tax as an “immoral double tax on property and assets.” Senator Sanders (I-Vt.) counters with a floor speech in support of his proposal (S. 3533), filed in June , which would reenact the tax with a $3.5 million exemption, tax rates of 45% to 55%, and a “billionaire’s surtax” of 10%. Neither position has any chance of success in the current Senate.

July 19, 2010: The Family Business Estate Tax Coalition, a potent coalition of small business organizations, comes out in support  of the Kyl/Lincoln proposal. This development is of some significance, because the FBETC describes itself as “a grassroots organization dedicated to the full, permanent repeal of the estate tax” and it has long been active in the repeal movement.

July 20-21, 2010: More advocacy organizations weigh in.  The Heritage Foundation calls for full repeal. United for a Fair Economy opposes the Kyl/Lincoln proposal and says that the estate tax should be reinstated at its 2009 level.

July 21, 2010: The DeMint amendment to repeal the estate tax fails on a 39-59 vote  after the Senator again calls the tax “immoral.” Senator Sanders describes the amendment as “absurd.”

July 22, 2010: The Senate Finance Committee holds a closed-door meeting  to discuss pending tax legislation. After the meeting, Senator Stabenow (D-Mich.) says that the Committee discussed the possibility of addressing the estate tax as part of a legislative package extending the so-called “Bush tax cuts” after 2010.

July 27, 2010: Senate Finance Committee Chairman Baucus (D.-Mont.) tells BNA  that it is increasingly unlikely that any estate tax legislation would be retroactive to January 1, 2010. He holds out the possibility that estates of decedents dying in 2010 could elect between the estate tax and the carryover basis regime. He also says that he expects the estate tax to be included in any legislation addressing the Bush tax cuts, but is uncertain whether a draft of that legislation will be available before the August recess. Senator Grassley (R.-Iowa), ranking member of the Committee, concurs in this forecast.

July 28, 2010: Rep. Levin (D-Mich.), Chairman of the House Ways and Means Committee, tells BNA  that he is undecided whether any reenactment of the estate tax should be retroactive to January 1, 2010. He also says that he is not committed to addressing the estate tax as part of any legislation that extends the Bush tax cuts, although he expects that legislation to pass in 2010.


Harold W. Pskowski, Managing Editor for Estates, Gifts and Trusts

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