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Monday, September 21, 2009

The Estate Tax Legislative Battle

Wall Street Journal, Estate Tax Faces Its Own Life-and-Death Struggle, by Jonathan Weisman:

President Barack Obama and congressional Democrats are united behind an effort to block a scheduled year-end repeal of the estate tax. But prospects are blurred by divisions between the House and Senate over the contours of a restored tax, as well as Capitol Hill's focus on health care. ...

President George W. Bush's 10-year, $1.35 trillion across-the-board tax cut, passed in 2001, included a slow-but-steady reduction of the levy on heirs that critics branded "the death tax." Under the law, the value of an inheritance shielded from taxation increased from $1 million to $3.5 million in 2009. The tax rate on inheritances larger than that slowly decreased from 55% to 45%. Then, in 2010, the entire estate levy was to disappear.

WSJ Estate Tax

But it is scheduled to come back in full, pre-Bush force in 2011 -- a 55% rate on the portion of estates over $1 million -- when the entire 2001 tax cut expires. ... Democrats say they do want to keep the Bush tax cuts in place for middle- and lower-income families. But they want to let the cuts expire for upper-income households and for large inheritances. Mr. Obama has proposed permanently locking in the estate tax at the current 45% rate with a $3.5 million exclusion. Politically, if Democrats can maintain the status quo rather than let the tax disappear next year, they can avoid being portrayed as raising taxes when the levy reverts to its pre-Bush level in 2011.

Officially, Republicans in Congress would like to see it disappear on schedule. ... But very few believe that is possible. Republican leaders worry that liberal Democrats would accept a one-year repeal, then block any action in 2010 to ensure the tax returns in 2011, at 55%. That has put Republicans in the mood to compromise as well. ...

Senate Finance Chairman Max Baucus (D, Mont.) and House Ways and Means Chairman Charles B. Rangel (D, N.Y.). Mr. Rangel agrees with the president that the 2009 estate tax -- a $3.5 million inheritance-tax exclusion and 45% rate -- should be locked in permanently. In March, Mr. Baucus proposed the same policy, though he added a provision indexing the exclusion to inflation. That plan is likely to pass the House handily.

But the Senate is more complicated. Senate Republican Whip Jon Kyl of Arizona has proposed a $5 million exemption, with a 35% tax rate, and he has teamed with moderate Democrat Blanche Lincoln of Arkansas, who is up for re-election in a state where opposition to the estate tax is solid.

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Comments

Thanks for posting this!

Posted by: Kurt Iselt | Sep 22, 2009 9:34:40 AM

Taxation is a no-win scenario in that the government needs the revenue but the taxpayers say don't tax me. Hopefully Congress will act rationally if not we'll end up with more "Reconciliation" and face a transfer tax issue again in ten years.

Posted by: Tobias M mendelson | Sep 22, 2009 7:49:18 PM

I have been blogging about fictional tales concerning what could happen should the estate tax be repealed in the year 2010. Starting in late 2009 through early 2011, there's a lot of macabre things to think about. Like for example, do we need to start advising clients who happen to be worth over $3.5 Million to revise their advanced medical directives to NOT pull the plug. The next few months should be interesting to say the least.

Posted by: John Rodgers | Sep 23, 2009 6:36:34 AM