WASHINGTON – My how things have changed. Congress agreed to a 10-year permanent estate tax repeal bill in 2001 while operating on a budget surplus, so the feasibility that it would stick looked promising. Today, however, Congress is facing a timeline to do away with the estate tax, or at least hammer out a compromise, during a time of budget deficits.
Congress has until December 31 to at least do something in regards to estate tax repeal, which was “established in the 2001 tax cut law” and set in motion “a gradual, but ultimately temporary, decline in the estate tax. If Congress does nothing, the current estate tax — with a $3.5 million per-person exemption and a maximum tax rate of 45 percent — will disappear at midnight, remain repealed for a year, then return at higher rates and lower exemptions in 2011,” reports Congressional Quarterly.
Citing “changing fiscal realities,” the news source writes that, “Dozens of Democrats voted for Republican-crafted repeal measures at least once in 2000, 2002, 2003, 2005 or 2007.” However, now that federal government is running a record budget deficit.
Another obstacle is the short legislative calendar remaining for the year, which will prove to be a challenge as both chambers continue work on health-care reform and climate-change measures. There is talk, however, that Congress could pass a one-year extension o of the existing law through 2010 “to prevent repeal and roll the estate tax issue into a broader tax bill expected next year,” write the news source.
Meanwhile, some legislators are looking to pass some kind of estate tax relief before the year’s end:
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H.R. 436 – Rep. Earl Pomeroy (ND-at large):
Makes the current exemption of $3.5 million and the rate of 45% permanent. (Estates between $10 million and $23.5 million would be taxed at 50%.).
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H.R. 96 – Rep. Michael Conaway (TX-11): Increases to $1.85 million the maximum reduction amount for alternative valuations of farmland and other business property for estate tax purposes; and restores after 2009 the estate tax deduction for family-owned business interests and increase such deduction to $2 million. Allows annual inflation adjustments to such increased amounts after 2010.
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H.R. 173 – Rep. John Salazar (CO-3): Excludes from an individual’s estate farmland so long as the land continues to be used for farming. To exclude such farmland from the total estate, the individual must have earned 50% of their gross income from farming in at least 3 of the 5 years from the individual’s last tax year and during 5 of the 8 years prior to the individual’s death the land must have been used for farming. If the land is subsequently sold or no longer used for farming a tax will be applied on the heirs.
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H.R. 205 – Rep. Mac Thornberry (TX-13): Repeals the federal estate, gift and generation-skipping transfer taxes.
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H.R. 498 – Rep. Harry Mitchell (AZ-5): Restores the unified credit against gift tax liability; provides for annual increases in the estate tax exclusion amount between 2010 and 2015 and establishes a permanent exclusion amount of $5 million for 2015 and thereafter; provides for an inflation adjustment to the estate tax exclusion amount after 2015; reduces estate tax rate brackets; and allows a surviving spouse to use the unused unified estate tax credit of a deceased spouse.
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H.R. 2023 – Rep. Jim McDermott (WA-7): Sets a $2 million per-person exemption, indexed for inflation, and imposes a 55 percent top rate.
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H.R. 3524 – Rep. Mike Thompson (CA-1): Prevents the value of inherited farmland from being subject to the estate tax if the decedent’s family continues to own it and farm it.
Additional Resources: NACS position on permanent estate tax repeal