Monday, April 20, 2009
This Week in Washington - 4/20/09
Member of Congress are returning to DC after their two-week district work period and will be back in session tomorrow. We are looking ahead to a busy legislative schedule in the weeks and months ahead as Congress is likely to consider sweeping legislation on health care and climate change, not to mention the standard business of considering appropriations bills for FY2010. One issue that is likely to be discussed is the estate tax. This week’s update is an opportunity for us to provide additional background on this important issue.
The estate tax is one unresolved issue facing the Budget Resolution conference committee. The House resolution assumes that the estate tax would continue under the 2009 parameters, which provides an exemption of $7 million per couple and $3.5 million per individual with a statutory rate of 45 percent. The 2001 tax-cut law gradually phased out the estate tax by raising the exemption levels and reducing the top rate. Under current law, the tax will disappear completely in 2010 but reappear in 2011 under its 2001 parameters, with a $1 million exemption and a 55 percent rate on the largest estates. No policy-maker wants this to happen, so some action on the estate tax is very likely to occur this year.
The full Senate approved the Lincoln-Kyl amendment to substantially weaken the estate tax by increasing the exemption to $5 million per individual/$10 million per couple, reducing the top rate to 35 percent, and “reunifying” the estate tax and gift tax exemptions. While the vote, which was 51-48, was on an amendment to create a reserve fund and is not binding, a majority of Senators went on the record in support of cutting the estate tax below the President’s levels.
The picture was blurred a bit by a subsequent vote on a Durbin amendment to create a point of order against any estate tax legislation beyond what is assumed in the underlying resolution unless it provides an equal amount of tax relief to taxpayers earning less than $100,000. That vote was 56-43. Senator Durbin mainly offered this amendment to give moderates something to be for so they could vote against the Lincoln-Kyl amendment. In other words, it’s going to take a lot of work to get them to ultimately vote against further reductions in the estate tax.
The conferees are likely to drop the Durbin amendment because it causes procedural problems for the budget resolution when it comes back for final approval.
Although we don’t know for sure yet, there’s a growing sense that extending the middle class tax cuts could be deferred until next year. (This does not pose a problem for the refundable credits because they are also in place through 2010.) If that happens, comprehensive estate tax legislation is also likely to be deferred until next year. The President and opponents of further reductions in the estate tax will not want to let it expire in 2010, so it is looking increasingly likely that a one-year extension of the 2009 parameters will need to be enacted this year.
We’re very worried that the anti-estate tax crowd will use this as an opportunity to cut the estate tax for just one year, possibly to the levels proposed in the Lincoln-Kyl amendment. In fact, the ranking member on the Finance Committee, Senator Grassley, has made it clear that any estate tax legislation, even an extension, will be blocked unless they get a higher exemption and a lower rate.
We’ll be working to figure out a way to put significant pressure on Congress, and on Senator Voinovich in particular, to ensure that the 2009 levels stay in place for at least one more year.
The estate tax is one unresolved issue facing the Budget Resolution conference committee. The House resolution assumes that the estate tax would continue under the 2009 parameters, which provides an exemption of $7 million per couple and $3.5 million per individual with a statutory rate of 45 percent. The 2001 tax-cut law gradually phased out the estate tax by raising the exemption levels and reducing the top rate. Under current law, the tax will disappear completely in 2010 but reappear in 2011 under its 2001 parameters, with a $1 million exemption and a 55 percent rate on the largest estates. No policy-maker wants this to happen, so some action on the estate tax is very likely to occur this year.
The full Senate approved the Lincoln-Kyl amendment to substantially weaken the estate tax by increasing the exemption to $5 million per individual/$10 million per couple, reducing the top rate to 35 percent, and “reunifying” the estate tax and gift tax exemptions. While the vote, which was 51-48, was on an amendment to create a reserve fund and is not binding, a majority of Senators went on the record in support of cutting the estate tax below the President’s levels.
The picture was blurred a bit by a subsequent vote on a Durbin amendment to create a point of order against any estate tax legislation beyond what is assumed in the underlying resolution unless it provides an equal amount of tax relief to taxpayers earning less than $100,000. That vote was 56-43. Senator Durbin mainly offered this amendment to give moderates something to be for so they could vote against the Lincoln-Kyl amendment. In other words, it’s going to take a lot of work to get them to ultimately vote against further reductions in the estate tax.
The conferees are likely to drop the Durbin amendment because it causes procedural problems for the budget resolution when it comes back for final approval.
Although we don’t know for sure yet, there’s a growing sense that extending the middle class tax cuts could be deferred until next year. (This does not pose a problem for the refundable credits because they are also in place through 2010.) If that happens, comprehensive estate tax legislation is also likely to be deferred until next year. The President and opponents of further reductions in the estate tax will not want to let it expire in 2010, so it is looking increasingly likely that a one-year extension of the 2009 parameters will need to be enacted this year.
We’re very worried that the anti-estate tax crowd will use this as an opportunity to cut the estate tax for just one year, possibly to the levels proposed in the Lincoln-Kyl amendment. In fact, the ranking member on the Finance Committee, Senator Grassley, has made it clear that any estate tax legislation, even an extension, will be blocked unless they get a higher exemption and a lower rate.
We’ll be working to figure out a way to put significant pressure on Congress, and on Senator Voinovich in particular, to ensure that the 2009 levels stay in place for at least one more year.
