Estate Tax May Expire as Congressional Impasse Clouds Extension
The lawmakers said Congress would likely seek to restore it retroactively next year.
North Dakota Representative Earl Pomeroy, a Democrat who sponsored legislation adopted by the House Dec. 3 to freeze indefinitely the 45 percent tax rate on estates worth more than $7 million per couple, said its “more likely than not” the levy will lapse.
Senate Budget Committee Chairman Kent Conrad, also a North Dakota Democrat, said theres a “great possibility” the Senate wont be able to pass a temporary extension before the House adjourns for the year.
“It looks like the law will continue to play out without being fixed,” Pomeroy told reporters yesterday. Even if the Senate passes a measure after the House adjourns, he said the odds are “extremely remote” the House would return to accept a Senate measure.
A temporary expiration would hand a victory to congressional Republicans who enacted legislation in 2001 to phase out what they call the “death tax.” It also would subject tens of thousands of heirs who otherwise wouldnt owe taxes to capital gains rates if they liquidate inheritances.
Two-Month Plan
Representative Charles Rangel said yesterday that House members are drafting legislation to extend the current law for two months. The tax now yields about $25 billion in revenue annually.
“Anything to make certain that it just doesnt expire,” said Rangel, a New York Democrat and chairman of the House Ways and Means Committee.
Finance Committee Chairman Max Baucus of Montana said that his fellow Senate Democrats will try to attach a “very short” extension to other legislation expected to be voted on before adjournment.
Under the tax-cut bill then-President George W. Bush pushed through Congress in 2001, the estate tax ends for one year in 2010 and then is reinstated in 2011 at a rate of 55 percent for estates valued at more than $1 million.
“This bizarre estate tax regime we will have in the coming weeks is the best indictment of the failure of our current federal tax system,” said Mark Bloomfield, president of the American Council for Capital Formation, a Washington group that has lobbied for a compromise that would impose reduced rates on estates valued at more than $10 million per couple.
Unless Congress acts, the estate tax would be replaced next year by a capital-gains tax on all but the first $1.3 million in inherited assets, including homes, stock certificates, stamp collections and livestock.
Heirs who sell those assets would pay from 15 percent to 28 percent in taxes on any appreciation in value since the assets were acquired. Current law imposes capital-gains taxes only on any increase in value after the assets are bequeathed.
Pomeroy said some 61,000 Americans would face taxes under the capital gains regime, versus about 6,000 estates that would face a tax under an extension of the current law.
The Senate has feuded for years over the tax. The fight has been complicated recently by a proposal from Senators Blanche Lincoln, an Arkansas Democrat, and John Kyl, an Arizona Republican, to exempt the first $10 million of a couples estate and set the top rate on amounts over that at 35 percent.
During budget deliberations earlier this year, the proposal failed to obtain the 60 votes it needed to overcome opposition in the Senate.
Tax Supporter
A prominent proponent of taxing large estates, Bill Gates Sr., father of Microsoft Corp. founder Bill Gates and co- chairman of the Bill and Melinda Gates Foundation, urged Congress to retain the tax.