Open CRS has released a new Congressional Research Service Report, Estate Tax Legislation in the 111th Congress (December 02, 2009). The report examines and analyzes several versions of proposed estate tax bills in the 111th Congress, including legislation to permanently extend the 2009 estate tax; a permanent extension of the law, but with a $5 million exemption and a top 35% tax rate; and a one-year extension of the 2009 law. Here is the summary:
The federal government levies an estate tax on the net value of assets transferred to other individuals upon a person's death. Under provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16), for people who die in 2009, the applicable exclusion amount (exemption) under the estate tax is $ 3.5 million per decedent, and the maximum estate tax rate is 45%. There is a gift tax often associated with the estate tax and it is scheduled to remain in place in 2010, with a cumulative lifetime exclusion of $ 1 million and a maximum tax rate of 35%.
The estate tax provisions of EGTRRA are scheduled to sunset at the end of 2010. In addition, when the estate tax is repealed in 2010, there is scheduled to be a significant change in the method used to determine the "basis" of all capital assets transferred at death -- from "step-up in basis" to "modified carryover basis." If Congress does not change the law beforehand, on January 1, 2011, estate and gift tax law will return to what it would have been had EGTRRA never been enacted. The unified estate and gift tax will be reinstated with a unified (combined) exclusion of $ 1 million. The maximum tax rate will rise back to 55%, plus a 5% surtax on taxable estate value over $ 10.0 million and up to $ 17.184 million.
The Obama Administration's federal budget proposal for FY2010 includes a proposal to extend 2009 estate tax law, and the extension is not classified as a tax cut. The concurrent budget resolution that Congress adopted for FY2010 (S.Con.Res. 13) on April 29, 2009, provided budget room for the extension of 2009 estate tax law. H.R. 2920, the Statutory Pay-As-You-Go Act of 2009, as passed by the House on July 22, 2009, states explicitly that the extension of 2009 estate tax law is not an item that would need to be paid for under the statutory pay-go rules being proposed in the bill. The same language was included as Division B of H.R. 3961, passed by the House on November 19, 2009. (Division A of H.R. 3961 is the Medicare Physician Payment Reform Act of 2009.)
Numerous bills have been introduced in the first session of the 111th Congress to either permanently repeal the estate tax, or to retain the estate tax but modify it. The three most frequently mentioned options for extending the estate tax include a one-year extension of 2009 law; a permanent extension of the estate tax, but with a $ 5 million exemption and a maximum tax rate of 35%; and a permanent extension of 2009 law.
The week of November 30, 2009, the House is scheduled to vote on this third option in the form of H.R. 4154, the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009, introduced by Representative Earl Pomeroy on November 19, 2009. H.R. 4154 would permanently extend 2009 estate tax law. The estate tax exemption would remain at $ 3.5 million per decedent; the exemption amount would not be indexed for inflation. The top estate tax rate would remain at 45%. The provisions of H.R. 4154 would take effect January 1, 2010.
The Treasury Department estimated the revenue loss from extending 2009 estate tax law, relative to current law (with a $ 1 million exemption per decedent and maximum tax rate of 55% in 2011 and beyond), for FY2010-FY2019. Treasury estimated a 10-year loss of $ 171 billion. The revenue loss estimate for the first five-year period, FY2010-FY2014, is $ 46 billion. It rises to $ 125 billion for the second five-year period, FY2015-FY2019, when the effects of the new law would be fully reflected.
Posted by Marc Patterson, Associate Editor, Wealth Strategies Journal.
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