A number of articles have reported that Senators have reached no agreement on the federal estate tax.
In Kyl: Senate deal off on estate tax (On the Money: The Hill’s Finance & Economy Blog, 5/18/10), Vicki Needham reports the following:
Senate Minority Whip Jon Kyl (R-Ariz.) said the accord, which was all but forged a week ago, began to dissolve Monday night and broke down Tuesday after talks between leaders in both parties.
After talks with Senate Finance Chairman Max Baucus (D-Mont.) and Senate Minority Leader Mitch McConnell (R-Ky.), they scrapped a plan to move forward with the tax that expired at the end of 2009.
In US Senate Effort to Reduce Estate Tax Hits Turbulence (Dow Jones Newswires, 5/18/10), Martin Vaughan reports:
[I]n a closed-door meeting of Senate Democrats Tuesday, several senators denounced the plan in strong terms, according to those present. They argued that with problem budget deficits and with many Americans still out of work, it is the wrong time to cut taxes on the richest Americans.
In their own words.
Here are few quotes from senators:
- Senate Minority Whip Jon Kyle [R-AZ]:
- “Nothing is clear about how the estate tax will be considered.” (Source: Martin Vaughan, US Senate Effort to Reduce Estate Tax Hits Turbulence)
- “We no longer have an agreement because the Democratic side has decided that unless a matter has a guaranteed majority of Democratic votes going in, they’re not going to allow it on the floor, at least not voluntarily. . . . So we have to find a way to get a reasonable permanent estate tax reform to the floor where members can vote on it.” (Source: Vicki Needham, Kyl: Senate deal off on estate tax.) (You can hear Sen. Kyle speak the first sentence at Republican Kyl Says Democrats Are Blocking His Estate Tax Amendment, Talk Radio News Service, May 18, 2010.)
Notes on the proposed deal.
Although the details of the proposed deal have not been disclosed, here are some notes, which are compiled from various news articles:
- Tax cuts. Tax cuts would be phased-in over ten years: the rate would go down 35% and the exemption up to $5 million, indexed for inflation. (Martin Vaughan, US Senate Effort to Reduce Estate Tax Hits Turbulence.)
- Prepaying the estate tax.There have been talks about giving individuals the option of prepaying the estate tax through pre-paid trusts. Individuals who pre-pay would benefit from a lower rate. (Id.)
- Budget offsets. Lawmakers were searching for budget offsets within the estate tax. The offsets would (1) help to prevent a higher deficit, and (2) prevent “dipping into other revenue streams” (Meg Shreve, Lobbyists Say Lawmakers Looking for $60 Billion in Offsets for Estate Tax Bill, Tax Notes Today, May 17, 2010, 2010 TNT 94-4).
- No credit for state estate taxes. The federal tax credit for state estate taxes would continue to be repealed.
- Limits on GRATs. Limits on the use of GRATs were being considered.
- Pay-as-you-go. The proposal could comply with pay-as-you-go rules. “Budgeting rules dictate that the 2009 estate tax levels can be extended for two years without revenue offsets, but additional revenue loss must be offset. Senators can waive the offset rule, however, with a 60-vote supermajority.” (Eric Kroh, Kyl Says Agreement Reached on Some Estate Tax Details, Tax Notes Today, May 18, 2010, 2010 TNT 95-2.)
A number of issues were not clarified in the articles that I read:
- the gift tax rate and exemption
- whether any changes would be retroactive
Also, there is no indication that portability of the exemption amount between spouses was discussed.
Status of the reform.
Estate tax uncertainty continues. Reform is hampered by a deep divide between democrats and republicans:
- House. As indicated in the voting for H.R. 4154, most Democrats in the House supported a permanent estate tax with an exemption of $3.5 million and a tax rate of 45%. Republicans in the House did not.
- Senate. As the current talks indicate, some Republicans (and some Democrats) would support a lower estate tax rate (down to 35%) and a higher exemption (up to $5 million). Yet some Democrats vehemently oppose such a tax reduction. At least one Democrat in the Senate finds the idea “nauseating.”