House votes to make current estate tax permanent
By Ben Pershing
The House approved Thursday a measure making the current estate tax rate permanent, overcoming the objections of an unusual coalition of liberal and conservative critics.
The bill passed, 225 to 200, with 26 Democrats joining all Republicans present to vote no. It would make permanent the current estate tax rate of 45 percent, with an exemption of $3.5 million per individual. If Congress does not act, the estate tax would disappear altogether in 2010, then return in 2011 under the higher rates — 55 percent and a $1 million exemption — that existed before President George W. Bush took office.
The Senate faces a Dec. 31 deadline to address the issue, but it’s not clear when that chamber will find the time to do so in the midst of its marathon health-care debate. It’s also unclear whether the House’s approach on the estate tax could garner the 60 votes necessary to move forward in the Senate.
Some Democrats in both chambers would prefer to see higher estate tax rates, arguing that the pre-2001 levels were fair and provided the government with much-needed funds. Making the current rates permanent will take a bite out of the federal treasury, with the government estimated to lose $234 billion in revenue over the next 10 years.
Most Republicans, meanwhile, don’t want any estate tax at all, opposing the concept on philosophical grounds.
“Death should not be a taxable event,” said Rep. Dave Camp (Mich.), the top Republican on the tax-writing Ways and Means Committee. “Death should not force the sale of family farms or the dissolution of small businesses. The fear of death should not be a reason for Americans to hire a battery of accountants and lawyers to find legal ways to reduce the bite of the estate tax.”
While Republicans often invoked the specter of distressed farmers and business owners Thursday, Democrats suggested the GOP was trying to mask their true desire to shield the wealthiest Americans from taxation.
“Abolishing the estate tax would add billions and billions to our deficit — and while a small number of wealthy families would benefit, the growth of our economy as a whole would suffer,” said House Majority Leader Steny Hoyer (D-Md.).
The current rates leave roughly 0.2 percent of all estates subject to taxation in 2009, according to the Tax Policy Center, a think tank. Since the $3.5 million per-person exemption is not indexed for inflation, that percentage will gradually increase over time.
Senate Majority Leader Harry Reid (D-Nev.) said Thursday that he had met with House leaders to figure out a way forward on the estate tax and other end-of-session priorities. Sens. Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.) are pushing a measure that would reduce the estate tax rate to 35 percent, with an exemption of $5 million per individual.
That said, this bill and all the indignation is much ado about nothing. Bush's compromise of 1-year repeal before expiry was really a donut hole "compromised bill" since other, more onerous taxes would kick in in its place:
Under current law, if someone inherits a $5 million estate in 2009, they would pay $675,000 in federal estate taxes, according to an analysis by Deloitte Tax. In 2010, they would pay no estate tax but the estate would be subject to a 15 percent capital gains tax. If they inherit the $5 million estate in 2011, they would pay $2,045,000 in estate taxes, according to the analysis. Under the House bill, they would pay $675,000 in estate taxes, regardless of which year the estate is inherited WASHINGTON (AP) - The House voted Thursday to permanently extend a 45 percent inheritance tax on estates larger than $3.5 million, canceling a one-year repeal of the tax set to begin next month.
If Republicans offered a bill or an amendment to repeal the estate tax without replacement taxes (i.e. passing estate tax-free due to double taxation, which would, likely, earn them the usual "protectors of the rich" rhetoric from Democrats) they would have a case. To vote "for" the status-quo Bush's phony 1-year exemption / "repeal" of estate tax is a show, just like the Democratic bill is also for show - that they "care about middle class".
If anything, this bill mildly improves on a weird and artificial 2010 estate-tax planning, but something like this should have been expected earlier than a month before expiry.
A tale. Told by an idiot, full of sound and fury, signifying nothing.