Below is the text of "Estate Tax Legislation in the 111th Congress" prepared by Congressional Research Service:
Estate Tax Legislation in the
111 Congress
Nonna A. Noto
Specialist
in Public Finance
July 16, 2010
Congressional
Research Service
7-5700
www.crs.gov
R40964
CRS
Report for Congress
Prepared
for Members and Committees of Congress
Summary
The federal government levies an estate tax on the
net value of assets transferred to individuals, other than the surviving
spouse, 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 died in
2009, the estate tax exemption was $ 3.5 million per decedent, and the maximum
estate tax rate was 45%. For people who die in 2010, there currently is no
estate tax. However, the gift tax, associated with the estate tax, remains in
place in 2010, with a cumulative lifetime exclusion of $ 1 million (above and
beyond the annual gift exclusion of $ 13,000 per donor per recipient) and a
maximum tax rate of 35%.
Also for 2010, while the estate tax is repealed,
there is a significant change in the method used to determine the
"basis" of all capital assets transferred at death -- from
"step-up in basis" (value at the time of the decedent's death) to
"modified carryover basis." Basis is the "cost" of an
asset, used to calculate the capital gains tax due when heirs sell inherited assets.
Under the modified carryover basis rules for 2010, there is a step-up-in-basis
allowance that can be added to the decedent's acquisition cost (carryover
basis) to determine the heirs' basis in the assets. The cumulative value of the
step-up allowance is $ 1.3 million per decedent, plus another $ 3 million for
assets transferred to a surviving spouse. In effect, these allowances continue
to provide step-up in basis treatment for the heirs of small estates, thereby
protecting them from potential tax liability on the capital gains that accrued
during the decedent's period of ownership.
The estate tax provisions of EGTRRA are scheduled to
sunset at the end of 2010. 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 would be
reinstated with a unified (combined) exemption of $ 1 million. The maximum tax
rate would rise back to 55%, plus a 5% surtax on taxable estate value from $
10.0 million to $ 17.184 million.
Numerous bills were introduced in the first session
of the 111 Congress either to permanently repeal the estate tax or to retain
the estate tax with modifications. Several bills would target estate tax relief
on family owned farms, small businesses, or conservation easements. On December
3, 2009, the House passed H.R. 4154 by a vote of 225-200. Division A of H.R.
4154 is the Permanent Estate Tax Relief for Families, Farmers, and Small
Businesses Act of 2009. It would permanently extend 2009 estate tax law
effective January 1, 2010. The estate tax exemption would remain at $ 3.5 million
per decedent, and the subordinate gift tax exclusion at $ 1 million. These
exemption amounts would not be indexed for inflation. The top estate and gift
tax rate would remain at 45%. An alternative proposal in the Senate, the so-called
Lincoln-Kyl proposal, would permanently extend the estate tax, but with a $ 5
million exemption, indexed for inflation, and a maximum tax rate of 35%, both
phased in over 10 years. The Senate did not act on the estate tax in 2009 but
is expected to address the estate tax in 2010, during the second session of the
111 Congress. The Obama Administration's federal budget proposal for FY2011
once again proposed to permanently extend 2009 estate tax law, effective retroactively
to January 1, 2010.
Both the Treasury Department and the Joint Committee
on Taxation have estimated the 10-year revenue loss for FY2011-FY2020, relative
to current law (with a $ 1 million exemption), for the President's proposal to
extend 2009 estate tax law (with a $ 3.5 million exemption), effective
retroactively to January 1, 2010. The Treasury's 10-year revenue loss estimate
is $ 262 billion, and the JCT's is $ 253 billion. Neither estimate includes the
interest cost associated with deficit-financing the loss of revenue. This report
will be updated as legislative events warrant.
Contents
Current Law: The Economic Growth and Tax Relief
Reconciliation Act of 2001
Estate
Tax Exemption
Gift Tax
Law
Basis for
Inherited Assets
Return to Prior Law in 2011
H.R. 4154, Division A, the Permanent Estate Tax
Relief for Families,
Farmers, and Small Businesses Act of 2009
Budget Allowance for Permanent Extension of 2009
Estate Tax Law
What
"Extension of 2009 Law" Means
Obama
Administration's FY2010 and FY2011 Budget Proposals
FY2010
Budget Resolution
Statutory
Pay-As-You-Go Act of 2009
Statutory
Pay-As-You-Go Act of 2010
Revenue Loss Estimates
Arguments For and Against the Estate Tax
Bills Introduced in the 111 Congress
House
Bills to Repeal the Estate Tax
First Session -- 2009
Second Session -- 2010
House
Bills to Retain but Modify the Estate Tax
First Session -- 2009
House
Bills Targeting Estate Tax Relief on Family-Owned Farms,
Small
Businesses, or Conservation Easements
First Session -- 2009
Second Session -- 2010
Senate
Bills to Repeal the Estate Tax
First Session -- 2009
Senate
Bills to Retain but Modify the Estate Tax
First Session -- 2009
Second Session -- 2010
Senate
Bills Targeting Estate Tax Relief on Family Owned Farms,
Small
Businesses, or Conservation Easements
Second
Session -- 2010
Tables
Table 1. Estate Tax Exemption Amount, Top Tax Rate,
and Approximate
Tax
on a Taxable Estate of $ 4 Million in 2009, 2010, and
2011
and Beyond Under Current Law
Table 2. JCT and Treasury Department Estimates of
Revenue Loss and
Revenue If 2009 Estate Tax Law Is Extended, FY2010-FY2020
Table 3. CBO Estimates of Change in Revenue,
Relative to Current Law,
from
an Extension of 2009 Estate Tax Law and from Permanent
Repeal of the Estate Tax
Table 4. Top Brackets of Tax Rate Schedule Under
H.R. 2023
(McDermott) Compared with Pre-EGTRRA Law
Table 5. Phase-In Schedule Under H.R. 3905 (Berkley)
Table A-1. Alternative Estate Tax Proposals: TPC
Estimates of Number
of
Taxable Returns and Number of Small Farm and Business
Estates Owing Tax in 2011
Table A-2. Alternative Estate Tax Proposals:TPC
Estimates of Revenue
in
2011
Appendixes
Appendix A. Tax Policy Center Estimates for
Alternative Estate
Tax Proposals in 2011
Appendix B. Legislative Activity in Previous Four
Congresses, 2000-2008
Contacts
Author Contact Information
Acknowledgments
The federal government levies an estate tax on the
net value of assets (after subtracting eligible deductions) transferred to
individuals other than the surviving spouse upon a person's death. There is an
associated gift tax on the value of assets a person gives to others during his
or her lifetime. n1 Because of the large
tax-free exemption under each of these taxes, fewer than 2% of Americans ever
pay the federal estate or gift tax. Estate and gift taxes have contributed less
than 1.5% of total federal revenue for each of the past 10 fiscal years.
The law governing the estate tax from 2009 through
2011 takes large swings. The applicable exclusion amount (popularly known as
the exemption) under the estate tax was $ 3.5 million for anyone who died in
2009. The estate tax currently is repealed for people who die in 2010 only.
Then, because current law governing the estate tax is scheduled to sunset on
December 31, 2010, the estate tax is scheduled to be reinstated in 2011, with
an exclusion of $ 1 million per person for those dying in 2011 and the years
beyond.
These year-by-year differences in current estate tax
law mean large variations in potential estate tax liability, depending upon
which year a wealthy person might happen to die. As shown in the last column of
Table 1, the approximate estate tax due on a taxable estate of $ 4
million, for example, would be $ 225,000 if the owner died in 2009, zero in
2010, and $ 1,495,000 in 2011 and subsequent years. There is uncertainty about
whether a new law will be enacted to take effect in 2010, or a later year, and
what its parameters might be.
Table 1.
Estate Tax Exemption Amount, Top Tax Rate, and Approximate Tax
on a Taxable Estate of $ 4 Million in 2009, 2010, and 2011 and Beyond
Under
Current Law
Estate Tax Top Approximate Tax on a
Exemption Marginal Taxable Estate of
Year of Death
Per Decedent Tax Rate $ 4 Million
_____________________________________________________________________________
2009
$ 3.5 million 45% $ 225,000
2010
No estate tax 0% $ 0
2011 and beyond
$ 1 million 41% to
55% $ 1,495,000
_____________________________________________________________________________
Source: Tax liability calculated by CRS.
For an explanation, see
CRS Report RL33718, Calculating Estate Tax
Liability: 2001 to 2011 and Beyond, by Nonna A.
Noto.
a. The taxable estate is equal to the gross estate
(the aggregate value of
assets)
minus eligible deductions (including administrative expenses of the
estate,
state death taxes, debts, charitable bequests, and transfers to the
surviving
spouse). The tax liability is described as approximate because
other items
could affect the final calculation. For example, not taken into
account
here are gift taxes that may already have been paid on lifetime
taxable
gifts and foreign taxes paid on the estate.
Such large differences in anticipated estate tax
liability could influence the timing of deaths, or at least the officially
recorded date of death. n2 Indeed, there
is evidence that when Australia eliminated its estate tax on July 1, 1979,
"Over half of those who would have paid the estate tax in its last week of
operation managed to avoid doing so."
n3
Uncertainty about future law makes it difficult for
individuals and families to do the necessary long-term tax planning for their
estates. Enacting an estate tax law during 2010 that is retroactive to January
1, 2010, would deny people who have already died in 2010 any opportunity to
make adjustments. Waiting until late in 2010 to enact a change in the estate
tax law for 2011 and beyond would not give people much time to rearrange their
legal and financial affairs before the new law took effect on January 1, 2011.
Numerous bills were introduced in the first session
of the 111 Congress to either permanently repeal the estate tax, or retain the
estate tax, sometimes with modifications.
n4 On December 3, 2009, the House passed H.R. 4154 by a vote of 225-200.
Division A of H.R. 4154 would permanently extend 2009 estate tax law, effective
January 1, 2010, with an exemption of $ 3.5 million per decedent, not indexed
for inflation, and a maximum tax rate of 45%. The bill is described in a later
section of this report entitled "H.R. 4154, Division A, the Permanent
Estate Tax Relief for Families, Farmers, and Small Businesses Act of
2009."
An alternative proposal advanced in the Senate, the
so-called Lincoln-Kyl proposal, would permanently extend the estate tax, but
with a $ 5 million exemption, indexed for inflation, and a maximum tax rate of
35%, both phased in over 10 years. There is no such Senate bill to date. On
July 14, 2010, however, Senators Kyl and Lincoln moved to commit H.R. 5297, the
Small Business Jobs and Credit Act of 2010, to the Senate Finance Committee
with instructions that enumerate the main parameters of their estate tax
proposal. n5 H.R. 3905 (Berkley) also
would phase in the $ 5 million exemption and 35% rate limits over 10 years.
According to press reports, this option is the fall-back, second choice of some
Members who would prefer permanent repeal of the estate tax. n6
On December 16, 2009, the Senate decided not to act
on the estate tax in 2009. The Senate is expected to address the estate tax in
2010, during the second session of the 111 Congress, although no specific
legislative vehicle or timetable has yet been announced.
The estate tax provisions of the Economic Growth and
Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) sunset on December
31, 2010. Current estate tax law, for 2010 and for 2011and beyond, is described
in the next section, entitled "Current Law: The Economic Growth and Tax
Relief Reconciliation Act of 2001."
Appendix A, at the end of this report,
presents estimates by the Urban-Brookings Tax Policy Center (TPC) of the number
of taxable estate tax returns and the revenue expected for 2011 under four different
estate tax proposals. Table A-1 also includes the TPC's estimates of the
number of small farm and business estates that would be taxable under each of
the four proposals in 2011.
Appendix B summarizes legislative activity
on the estate tax in the previous four Congresses, from 2000 through 2008.
Current Law: The Economic Growth
and Tax Relief Reconciliation Act of 2001
Estate Tax Exemption
Title V of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA, P.L. 10716, enacted June 7, 2001)
temporarily phased out the estate tax by raising the "applicable exclusion
amount" or "exemption" under the estate tax, in large
increments, over a nine-year period. The exclusion increased from $ 675,000 in
2001 before EGTRRA, to $ 1 million for decedents who died in 2002 or 2003, $
1.5 million in 2004 or 2005, $ 2 million in 2006 through 2008, and $ 3.5
million in 2009. Then, the estate tax and generation-skipping transfer (GST)
tax are repealed for 2010 only, because the provisions of EGTRRA are scheduled
to sunset on December 31, 2010.
Gift Tax Law
The gift tax is levied on the taxable transfer of
assets made during a donor's lifetime. Under the law prior to EGTRRA, the
estate and gift tax exemptions were "unified." That is, the full
exemption amount could be used to protect from tax any combination of lifetime
gifts and bequests at death that added up to the dollar amount of the exemption
for the year of death. The same graduated tax rate structure that applied to
estates also applied to cumulative taxable lifetime gifts in excess of the
unified exemption amount.
In contrast, under EGTRRA, the exemption for
cumulative lifetime gifts was capped separately at $ 1 million, effective from
2002 onward, even as the combined exemption for gifts and bequests rose from $
1 million for decedents dying in 2002 and 2003 up to $ 3.5 million for
decedents dying in 2009. Furthermore, under EGTRRA, the gift tax remains in
place in 2010 while the estate tax is repealed, with a cumulative lifetime
exemption of $ 1 million.
The lifetime exclusion applies only to gifts in
excess of the annual exclusion for gifts from an individual to any number of
individuals. The dollar amount of the annual exclusion was set at $ 10,000 as
of 1998, and indexed for inflation thereafter. The value of the annual gift
exclusion was $ 12,000 for 2006, 2007, and 2008, and is $ 13,000 for 2009 and
2010. n7
The EGTRRA law means that, beginning in 2002, once
an individual has given away $ 1 million cumulatively in taxable gifts over his
or her lifetime, that individual will owe gift taxes on any further taxable
gifts, payable by April 15 of the year following the gift. Any amount of the
gift tax exemption (up to $ 1 million) used by a person during his or her
lifetime is to be subtracted from the combined estate tax exemption applying in
the person's year of death. This will determine the amount of the exemption
remaining to protect the person's estate from taxation. So, for example, if an
individual who had already given away $ 1 million in lifetime taxable gifts
died in 2009 when the combined exemption was $ 3.5 million per decedent, $ 2.5
million of the $ 3.5 million exemption would remain available to protect his or
her estate from tax.
The gift tax remains in place in 2010, while the
estate tax is repealed, with a separate cumulative lifetime exclusion of $ 1
million. For 2010, the gift tax rate is capped at 35%, equal to the maximum
individual income tax rate under EGTRRA. This is lower than the maximum rate of
45% that applied to estates and gifts in 2007 through 2009.
Basis for Inherited Assets
In 2010, while the estate tax is repealed, there is
a significant change in the method used to determine the tax "basis"
of capital assets transferred at death -- from "step-up in basis" to
"modified carryover basis." The basis is the "cost" of a
capital asset that is subtracted from the sales proceeds in order to calculate
the "capital gain" that is subject to income tax after an inherited
asset is sold by the heir. n8
Whatever basis-valuation rule is in effect for the
year of death applies to all capital assets transferred after any person's
death, whether or not their estate is large enough to be liable for the estate
tax. It determines the cost basis that all heirs must use to calculate the
capital gain if they sell an inherited capital asset.
Under the law in place through 2009, and which is
scheduled to resume in 2011, a step-up in basis rule applies to capital
assets transferred at death. n9 Under
the step-up rule, the cost basis of an asset for the heir is set at the value
of the asset on the decedent's date of death.
n10 If the heir sells the asset, his or her capital gain is calculated
as the difference between the sales price and the stepped-up basis. The
practical effect of the step-up in basis is to permanently forgive the income
tax liability on the increase in value of the asset (the capital gain) during
the decedent's period of ownership. n11
Assets transferred by gift during the donor's life still have a carryover
basis (typically the decedent's original purchase price) under EGTRRA, as
under prior law.
The estate tax is sometimes defended as a substitute
for the capital gains tax forgone because of the step-up in basis treatment of
assets transferred at death. n12
Consistent with this argument, an important tradeoff that EGTRRA made for the
repeal of the estate tax in 2010 was the return to a carryover basis for assets
transferred at death. n13 However, two
important exceptions were made in what is called a modified carryover basis.
First, EGTRRA permits an aggregate step-up in basis of $ 1.3 million per
decedent n14 in the original adjusted
basis of assets transferred at death ($ 60,000 for nonresident aliens). Second,
an additional step-up of up to $ 3 million is permitted for assets transferred
to a surviving spouse. These dollar amounts are indexed for inflation. n15 The executor of the estate is left with
the task of allocating the step-up allowance among specific assets.
The value of the two step-up allowances should be
compared with the net increase in value of the assets in an estate, not
the gross value of the assets. The $ 1.3 million step-up allowance might
cover all of the capital gains in a gross estate valued at $ 2 million or $ 3
million or more. The spousal step-up allowance of $ 3 million itself could
cover the gains in an estate with a gross value of $ 4 million or $ 5 million
or more. The practical effect of the individual and spousal step-up allowances
is to maintain the old step-up-in-basis treatment for all assets inherited from
smaller estates, and for part of the assets inherited from large estates.
Return to Prior Law in 2011
The estate tax repeal, and all other provisions of
EGTRRA, are scheduled to sunset at the end of 2010. n16 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
would be reinstated, with a combined exclusion (exemption) of $ 1 million. n17 The special deduction for qualified
family-owned business interests (QFOBI) would be restored, with a maximum value
of $ 1.3 million in combination with the applicable exclusion amount. The
maximum tax rate would revert (from 45% in 2007 through 2009) to 55%, with a 5%
surtax on taxable estate values over $ 10.0 million and up to $ 17.184 million.
Step-up in basis would again be the rule for assets transferred at death. The
credit for state death taxes would be reinstated; the deduction for state death
taxes would be dropped.
H.R. 4154, Division A, the
Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of
2009
On December 3, 2009, the House passed H.R. 4154.
Division A is the Permanent Estate Tax Relief for Families, Farmers, and Small
Businesses Act of 2009. Division B is the Statutory Pay-As-You-Go Act of
2009. n18 Despite its short title,
Division A of H.R. 4154 does not target estate tax relief on farmers and small
businesses. Rather, H.R. 4154 would apply the same estate tax relief to all
categories of assets.
H.R. 4154 would permanently extend 2009 estate tax
law, effective January 1, 2010. The estate tax exemption would remain at $ 3.5
million per decedent. The top estate tax rate would remain at 45%. The $ 3.5
million exemption amount would not be indexed for inflation. There is no
provision for any unused exemption to carry over to the surviving spouse.
H.R. 4154 would repeal several parts of EGTRRA. It
would repeal the subtitle of EGTRRA (Title V, subtitle A) that repeals the
estate tax and generation-skipping transfer tax in 2010. It would also repeal
the subtitle (Title V, subtitle E) that provides for the substitution of a
modified carryover basis (instead of a step-up in basis) for inherited assets
in 2010. It would repeal Section 511(d) that provides for the gift tax
to continue in 2010, with a top tax rate of 35%, and Section 521(b)(2)
that establishes a lifetime limit of $ 1 million on the exclusion from the gift
tax. H.R. 4154 would also repeal Internal Revenue Code (IRC) subsection 2511(c
) which treats certain transfers in trust as a taxable gift.
Under H.R. 4154, the sunset provision of EGTRRA
would not apply to the remaining portions of Title V of EGTRRA. That means that
some changes in estate and gift tax law made by EGTRRA would continue beyond
December 31, 2010. This includes the subordinate $ 1 million cumulative
lifetime exclusion for gifts (above and beyond the annual gift exclusion) and
the deduction for state death taxes (in place of the previous tax credit). n19
The House vote on H.R. 4154 was 225 to 200. n20 No Republicans voted for the bill.
Twenty-six Democrats joined 174 Republicans in opposing the bill. The bill
moved to the Senate. But on December 16, 2009, the Senate decided not to act on
the estate tax in 2009. n21 The Senate
is expected to address the estate tax in 2010, during the second session of the
111 Congress.
Budget Allowance for Permanent
Extension of 2009 Estate Tax Law
Three official documents issued in 2009 made room in
the federal budget for the permanent extension of 2009 estate tax law, without
it having to be paid for in accordance with pay-as-you go rules:
[#186] the
Obama Administration's budget proposal for FY2010,
released
in February 2009;
[#186] S.
Con. Res. 13, the concurrent budget resolution
that
Congress adopted for FY2010 on April 29, 2009;
and
[#186] the
Statutory Pay-As-You-Go Act of 2009, passed by
the House
as H.R. 2920, on July 22, 2009. The language
of H.R.
2920 was subsequently included as Division
B of H.R.
3961, passed by the House on November 19.
The
language of H.R. 2920 was later included as Division
B of H.R.
4154, passed by the House on December 3.
Thus far in 2010 two official documents address the
estate tax:
[#186] the
Obama Administration's budget proposal for FY2011,
released
February 1, 2010;
[#186] the
Statutory Pay-As-You-Go Act of 2010 (H.J.Res.
45, P.L.
111-139), enacted February 12, 2010.
What "Extension of 2009
Law" Means
Briefly, the extension of 2009 estate tax law means
a combined estate and gift tax exemption of $ 3.5 million per decedent and a
top tax rate of 45%. n22 It also means
that, within the $ 3.5 million exemption, the subordinate $ 1 million lifetime
exclusion from the gift tax would remain in place. Neither of these dollar
amounts would be indexed for inflation. The deduction for state estate and
inheritance taxes would continue, instead of the pre-EGTRRA tax credit which
had financed state "pickup" estate taxes. The 5% surtax that existed
prior to EGTRRA would be permanently repealed.
n23
Obama Administration's FY2010 and
FY2011 Budget Proposals
In the Obama Administration's federal budget
proposals for both FY2010 and FY2011, the proposal to extend 2009 estate tax
law was not classified as a tax cut. Instead, the Administration's
"Baseline Projection of Current Policy" assumed that the tax cuts
enacted in 2001 n24 and 2003 n25 would continue beyond their sunset date
of December 31, 2010. As part of that group, it was assumed that the estate tax
would be maintained "at its 2009 parameters" n26 -- that is, with an exemption of $ 3.5
million per decedent and a top tax rate of 45%.
n27 n28 Accordingly, the
Administration did not suggest any offset for this revenue loss.
FY2010 Budget Resolution
The Concurrent Resolution on the Budget for Fiscal
Year 2010 was S. Con. Res. 13. The conference report (111-89) on S. Con. Res.
13 was agreed to in both the House (by a vote of 233193) and the Senate (by a
vote of 53-43) on April 29, 2009. The budget resolution provided for a
five-year window -- the upcoming fiscal year and four out-years -- in this
case, FY2010 through FY2014. n29
The budget resolution for FY2010 contained plans for
$ 764 billion in tax cuts over the next five fiscal years. This included $ 72
billion to permanently extend the 2009 estate tax exemption of $ 3.5 million
for individuals, $ 7 million for couples, and a maximum tax rate of 45%. In the
conference report on S. Con. Res. 13 n30
the Blue Dog Democrats in the House attached a condition that permitted the
estate tax to be overhauled at a five-year cost of up to $ 72 billion only if
the House has first passed legislation to reinstate statutory pay-as-you-go
budgeting. n31
Two consecutive sections of S. Con. Res. 13, as
initially approved by the Senate on April 2, 2009, addressed the estate tax: Section
247 and Section 248. However, these two sections were not included
in the conference agreement finally approved by Congress.
Section 247 began as the Lincoln-Kyl
amendment, S. Amdt. 873, which was adopted by a vote of 51-48 on April 2, 2009.
Section 247 would have established a deficit-neutral reserve fund for
estate tax relief. It allowed for estate tax reform legislation that would establish
(1) an estate tax exemption of $ 5 million, indexed for inflation; (2) a
maximum estate tax rate of 35%; (3) a reunification of the estate and gift tax
credits; and (4) portability of the exemption between spouses (facilitating a $
10 million exemption for couples). But this was subject to the restriction that
such legislation would not increase the deficit over the total of either the 6-
or 11-year budget periods, FY2009-FY2014 or FY2009-FY2019. The Joint Committee
on Taxation (JCT) estimated that, relative to current law (with an exemption of
$ 1 million in calendar year 2011 and beyond), the Lincoln-Kyl amendment would
cost $ 100 billion in lost tax revenue over the first five years
(FY2010-FY2014) and $ 332 billion over the first 10 years (FY2010-FY2019). n32
Later the same day, April 2, 2009, the Senate
adopted, by a vote of 56-43, S. Amdt. 974, a seemingly conflicting amendment
offered by Senate Majority Whip Richard Durbin. The Durbin amendment became Section
248 of S. Con. Res. 13 as initially approved by the Senate. Section 248
provided for a point of order against legislation that would provide additional
relief for the estate tax beyond the levels assumed in the budget resolution,
unless an equal amount of additional tax relief was provided to middle-class
taxpayers. The levels assumed in the budget resolution were an estate tax
exemption of $ 3.5 million per person ($ 7 million per married couple) and a
top marginal tax rate of 45%. Middle-class taxpayers were defined as Americans
earning less than $ 100,000 per year. The tax relief for the middle class was
to be in addition to the amounts assumed in the budget resolution. These
conditions could be waived or suspended only by a vote of three-fifths of the
Members of the Senate. n33 n34
In H. Con. Res. 85 (Spratt), the initial budget
resolution approved by the House on April 2, 2009, Section 501, the policy
on middle-class tax relief and revenues, item 3 provided for the
"elimination of estate taxes on all but a minute fraction of estates by
reforming and substantially increasing the unified tax credit." The dollar
amount of the estate tax exclusion was not specified.
Statutory Pay-As-You-Go Act of
2009
On October 20, 2009, House Majority Leader Steny
Hoyer reiterated the position n35 he had
stated on April 29, 2009, when he said, "The House will not consider any
bills on middle-income tax cuts, the estate tax, AMT relief, or the sustainable
growth rate in the Medicare program unless they include statutory pay-go, they
are fully offset, or statutory pay-go has already been enacted." n36 These conditions mean that, in return for
the enactment of statutory pay-go legislation, the House would exempt the four
items listed by Representative Hoyer from having to comply with pay-go requirements.
On October 20, Senate Budget Committee Chairman Kent Conrad said those
exemptions were too high a price to pay for reinstating the pay-go law, citing
an estimate that it would add $ 3 trillion to the national debt over 10 years. n37
Extension of 2009 estate tax law is among the tax
provisions explicitly exempted from the pay-go requirements under Section
7(c) of H.R. 2920, the Statutory Pay-As-You-Go Act of 2009, as passed by
the House, by a vote of 265-166, on July 22, 2009. The language of H.R. 2920
was included as Division B of H.R. 3961 under the terms of H. Res. 903, when
H.R. 3961 passed the House on November 19. The language of H.R. 2920 was later
included as Division B of H.R. 4154 under the terms of H. Res. 941, when H.R.
4154 passed the House on December 3. Division A of H.R. 4154 is the Permanent
Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009.
Statutory Pay-As-You-Go Act of
2010
The Statutory Pay-As-You-Go (PAYGO) Act of 2010 is
Title I of P.L. 111-139 (H.J.Res. 45), the Public Debt Limit Increase, enacted
February 12, 2010. n38 The 2010
Statutory PAYGO Act retains many sections identical to those found in the 2009
PAYGO bill, but it also includes many new sections, including some that apply
to the estate and gift tax. The issue of interest here is how the 2010 PAYGO
Act defines the extent of the change it permits in current estate tax law that
would not need to be offset (by revenue increases or spending cuts), and how
that compares to the provisions of the 2009 PAYGO bill.
All provisions of the 2009 PAYGO bill were subject
to a 5-year and 10-year scorecard, referring to fiscal years. In contrast, the
estate tax provisions enacted in the 2010 PAYGO act remain in effect for at
most two calendar years, through December 31, 2011. The period could be
shorter, if the applicable time period for any estate tax law enacted under
this PAYGO protection ended before December 31, 2011 (for example, if there
were a one-year extension of 2009 estate tax law, through December 31, 2010).
The 2009 PAYGO bill provided for an extension of the
2009 parameters for the estate and gift tax without change. It did not provide
for indexing the dollar amounts for inflation. In contrast, Section 7(d)(2)(B)
of the 2010 PAYGO Act provides for the extension of 2009 estate tax parameters,
but with the "nominal exemption amounts indexed for inflation after
2009." The use of the plural "exemption amounts" suggests a
budget allowance for indexing the $ 1 million gift tax exclusion, as well as
the $ 3.5 million combined gift and estate tax exemption. n39
Revenue Loss Estimates
The Obama Administration's budget proposal for
FY2011 included in its baseline a permanent extension of 2009 estate and gift
tax law, effective retroactively to January 1, 2010. This means an estate tax
exemption of $ 3.5 million per decedent, a subordinate separate cumulative
lifetime exclusion from the gift tax of $ 1 million, and a maximum tax rate of
45%. Current law is a unified estate and gift tax exemption of $ 1 million per
decedent and a maximum tax rate of 55% for 2011 and subsequent years.
Both the Treasury Department and the Joint Committee
on Taxation (JCT) have estimated the 10year revenue loss for FY2011-FY2020,
relative to current law, for the President's proposal to extend 2009 estate tax
law, effective retroactively to January 1, 2010. In both sets of estimates, the
total federal revenue effect includes effects on income tax revenue as well as
on estate and gift taxes.
Column 1 of Table 2 presents the JCT's
estimates, released on March 8, 2010, of the estimated federal revenue loss
from extending 2009 estate tax law, relative to current law. Column 2 presents
comparable revenue loss projections made by the Treasury Department and published
in Obama Administration's FY2011 budget documents released on February 1, 2010.
In contrast, column 3 presents Treasury's estimates of the revenue that would
be generated by the estate and gift tax if 2009 law were permanently extended.
Adding together columns 2 and 3 would provide a very rough estimate of the
revenue loss from total repeal of the estate tax, relative to current law.
(Compare that sum to CBO's estimate of revenue loss from total repeal, shown in
the last column of Table 3.)
The 10-year revenue-loss estimate (for
FY2011-FY2020) for extending 2009 estate tax law, relative to current law, is $
253 billion from JCT and $ 262 billion from Treasury. The cumulative
revenue-loss estimate for the first five fiscal years is much smaller than for
the second five. For FY2011-FY2015, the revenue-loss estimate is $ 87 billion
from JCT and $ 90 billion from Treasury. The second five-year period offers a
better indicator of revenue loss for the long run, when the new estate tax law
would prevail in every year. The cumulative revenue-loss estimate for
FY2016-FY2020 is $ 166 billion from JCT and $ 172 billion from Treasury.
Table
2. JCT and Treasury Department Estimates of Revenue Loss and
Revenue If 2009 Estate Tax Law Is
Extended, FY2010-FY2020
(in billions of
dollars)
Joint Committee on
Treasury Department Taxation
Taxation Estimates
Estimates of
(March 2010)
Administration's Budget Proposal
(February 2010)
Revenue
Effects (Loss) Revenue
Loss Estate and Gift Tax
Relative to Relative Revenue
Fiscal Year
Current Law to Current
Law (Federal Funds)
_____________________________________________________________________________
2008 -- -- 29 (actual)
2009 -- -- 23 (actual)
2010 0.034 -2 17
2011 5 6 24
2012 -18 -19 21
2013 -21 -24 22
2014 -25 -26 24
2015 -28 -28 25
2016 -30 -30 27
2017 -32 -32 29
2018 -33 -34 32
2019 -35 -37 34
2020 -37 -39 36
2011-2015
-87 -90 116
2016-2020
-166 -172 158
2011-2020
-253 -262 274
_____________________________________________________________________________
Sources: JCT revenue loss estimates from U.S.
Congress, Joint
Committee on Taxation, Estimated Budget Effects of
the Revenue
Provisions Contained in the President's Fiscal Year
2011 Budget
Proposal, 111th Cong., 2nd sess., JCX-710R, Mar. 15,
2010, p. 1.
Treasury Department revenue loss estimates from U.S.
Executive Office
of the President, Office of Management and Budget
(OMB), Analytical
Perspectives, Budget of the United States
Government, Fiscal Year 2011
(Washington: Feb. 2010), revenue loss from extending
2009 estate and
gift tax parameters relative to current law, from
Table 14-2, p. 171,
"Adjustments to the Budget Enforcement Act
(BEA) Baseline
Estimates of Governmental Receipts to Reflect
Current Policy." The
same numbers are presented, in millions rather than
billions of
dollars, in U.S. Department of the Treasury, General
Explanations of
the Administration's Fiscal Year 2011 Revenue
Proposals, Washington,
Feb. 1, 2009 (also known as the "Green
Book"), Appendix A, p.
153, "Bridge from the Budget Enforcement Act
Baseline to Current
Policy Baseline."
The federal funds estimate of estate and gift tax
revenue is from OMB,
Analytical Perspectives, FY2011 Budget, Table 14-4,
p. 191,
"Receipts by Source -- continued." The
total for estate and
gift tax revenue in Table 14-4, which is used in
Table 14-1,
"Governmental Receipts by Source --
Summary" is equal to the
sum of the line items for "Federal funds"
plus
"Legislative proposal, subject to PAYGO,"
under "Estate
and gift taxes, " in Table 14-4.
Notes: CRS rounded the JCT and Treasury
Department estimates to
the nearest billion dollars.
a. CRS added the second five-year subtotal for
FY2016-FY2020.
The Treasury revenue estimates shown in column 3
suggest that, under an extension of 2009 estate tax law, estate and gift taxes
would raise approximately $ 22 billion in FY2013. They are projected to
increase by approximately $ 2 billion per year, reaching $ 36 billion in
FY2020. For each fiscal year from FY2013 through FY2020, the Treasury estimate
of revenue loss relative to current law, shown in column 2, is $ 2 billion or $
3 billion more than the Treasury estimate of the estate and gift tax revenue
remaining under an extension of 2009 law, shown in column 3. This suggests that
under an extension of 2009 law, estate and gift tax revenues would be less than
half of what they would be under current law.
The Congressional Budget Office (CBO) estimated the
revenue loss from an extension of 2009 estate tax law -- both without and with
indexing -- and from permanent repeal of the estate tax, each compared to
current law. n40 CBO's estimates are
presented in Table 3. Cumulatively for the 10-year forecast period,
FY2010-FY2019, CBO projected $ 420 billion in revenue under current estate tax
law. Next, CBO estimated the loss of revenue if 2009 estate tax law were
extended, with no indexing of the $ 3.5 million exemption, and a top tax rate
of 45%, as provided in H.R. 4154 as passed by the House in December 2009. The
estimated revenue loss was $ 234 billion over the 10 fiscal years, just over
half (56%) the $ 420 billion in revenue projected under current law. CBO then
projected the revenue loss if 2009 law were extended -- but with the $ 3.5
million exemption indexed for inflation. The revenue loss estimate increased
slightly to $ 244 billion, or 58% of the revenue projected under current law.
Finally, CBO estimated the loss of revenue if the estate tax were permanently
repealed as of 2010. The estimated revenue loss of $ 502 billion over the 10
years substantially exceeds the $ 420 billion in revenue projected under
current law. This is because repeal of the estate tax is expected to cause
income and gift tax revenues to fall as well.
Table 3.
CBO Estimates of Change in Revenue, Relative to Current Law,
from an Extension of 2009 Estate Tax Law
and from Permanent Repeal
of the Estate Tax
(December 2009 estimates, in billions of dollars)
Change in Revenue
Relative to Current Law
__________________________________________
Extension of 2009 Law
__________________________________________
Without
Estate and Indexing of With
Gift Tax the $ 3.5 Indexing of
Revenue Million the Permanent
Under Exemption Exemption Repeal of
Fiscal Year Current
Law (H.R. 4154) Amount Estate Tax
_____________________________________________________________________________
2010 15.4 0.5 0.5 -1.0
2011 15.7 -0.6 -0.7
-18.8
2012 35.1 -18.3 -18.6 -41.5
2013 38.9 -21.8 -22.3 -48.3
2014 43.6 -25.4 -26.0 -53.7
2015 48.2 -28.7 -29.6 -58.6
2016 51.2 -31.1 -32.4 -63.0
2017 54.1 -34.0 -35.8 -68.4
2018 57.1 -35.9 -38.1 -72.0
2019 60.3 -38.3 -41.1 -76.6
2010-2014
148.8 -65.6 -67.2 -163.3
2015-2019
270.9 -168.0 -177.0 -338.6
2010-2019
419.7 -233.6 -244.2 -501.9
_____________________________________________________________________________
Source: U.S. Congressional Budget
Office, Federal Estate and
Gift Taxes, CBO Budget and Issue Brief, by Pamela
Greene, Dec. 18,
2009, Table 3, p. 11.
Notes: These estimates are based on the
assumption that any of
the estate tax proposals is enacted in 2010, to take
effect
retroactively from January 1, 2010.
a. CRS added the second five-year subtotal for
FY2015-FY2019.
Arguments For and Against the
Estate Tax
The following are some of the hotly debated claims
commonly made by opponents and proponents of the estate tax, respectively. n41
Supporters of permanently repealing the estate tax
maintain that the tax
[#186]
reduces work effort, savings, and investment, thereby
reducing
long-term economic growth;
[#186] is a
form of double taxation, taxing money that has
already
been subject to the income tax;
[#186] leads
wealthy individuals to undertake economically
unproductive efforts and expenses in order to reduce
their
potential estate tax liability; and
[#186]
unduly burdens family farms and businesses
n42 and
penalizes
successful entrepreneurship.
Supporters of maintaining the estate tax argue that
the tax
[#186] does
not significantly discourage work, savings,
or
investment;
[#186] is an
important component of a progressive tax system
(a system
that taxes people with higher income and
wealth at
a higher rate than lower income people);
[#186] is
needed to break up the concentration and dynastic
transmission of wealth;
[#186] is a
backup for capital gains taxes not collected
on the
increase in asset values during a decedent's
lifetime
(because the tax basis of inherited capital
assets is
stepped up to their value at the time of
the
decedent's death);
[#186]
encourages charitable bequests;
[#186]
generates revenue that helps reduce the federal budget
deficit;
and
[#186] can
help states levy estate or inheritance taxes.
Bills addressing the estate tax generally fall into
one of two categories: those that would permanently repeal the tax and those
that would retain the tax, but modify it. If the choice is to repeal the estate
tax, questions still remain as to whether assets transferred at death should
have a carryover basis or step-up in basis
n43 and whether there should still be a gift tax. The definition of
basis has important implications for the capital gains tax liability of heirs
when they sell an inherited asset. The presence of a gift tax helps protect the
income tax (by inhibiting the transfer of assets to relatives and others in
lower income tax brackets) but discourages the transfer of assets during a person's
lifetime.
If the choice is to retain the estate tax but modify
it, there are numerous design elements to consider. In addition to setting the
level of the exclusion, there are the questions of whether the dollar amount
should be indexed for inflation and whether any unused exclusion amount should
carry over to the surviving spouse.
To date, little attention has been given to the tax
rate structure. Is it important to have a schedule of several graduated
marginal tax rates, starting at a modest level, instead of just one or possibly
two rates at a high level? Should the thresholds between the rate brackets be
indexed for inflation? Should the estate tax rate be established on its own, or
should it be set in terms of another tax rate, such as the top income tax rate
or the tax rate on long-term capital gains?
EGTRRA lowered the top tax rate from 55% to 45%, but
it did not alter the underlying schedule of graduated tax rates, which starts
at 18% on the first $ 10,000 of taxable estate. The top marginal rate of 45%
applies to taxable estate value in excess of $ 1.5 million. The applicable
exclusion amount under 2009 law is $ 3.5 million, which is already in the top
rate bracket. That means that any part of the estate in excess of the exclusion
amount is taxed at a flat rate of 45%.
Should there be special treatment for family-owned
farms and businesses? Should there be a credit or a deduction for state death
taxes? Should there also be a gift tax and, if so, should it be separate from
or unified with the estate tax? It may also be appropriate to design an estate
tax that is consistent with income tax policy toward saving and income from
investments.
Bills Introduced in the 111
Congress
Numerous bills to change the estate and gift tax law
were introduced in the first session of the 111 Congress. Four bills have been
introduced thus far in the second session. For each chamber, the bills are
organized under three headings: bills to repeal the estate tax, bills to retain
but modify the estate tax, and bills targeting estate tax relief on
family-owned farms, small businesses, or conservation easements.
Some House bills, such as H.R. 3841 and H.R. 4154,
mention farms (or farmers) and small businesses in their short title, but do
not target relief on those asset classes. Such bills are included under the
second subheading with bills that modify the estate tax in general, and not
under the third subheading with bills that would actually target estate tax
relief on family-owned farms and small businesses.
Pertinent to the current situation, two bills allow
the estate tax to be repealed in 2010, but then provide for the tax to be
reinstated in 2011, with an exemption higher than the $ 1 million under current
law and a top tax rate lower than the 55% under current law. Those two bills
are H.R. 4015 (McNerney) and H.R. 4174 (Nye).
House Bills to Repeal the Estate
Tax
Some bills would permanently repeal the estate and
generation-skipping transfer taxes by removing the sunset provision from
applying to Title V of EGTRRA. Under this approach to permanent repeal, the
changes that EGTRRA made to the gift tax would remain in place. So would the
substitution of modified carryover basis instead of carryover basis for assets
transferred at death. Other bills would permanently repeal the estate, gift,
and generation-skipping transfer taxes by repealing Subtitle B of the Internal Revenue
Code (Estate and Gift Taxes). This approach would leave in place the
step-up-in-basis for assets transferred at death.
First Session -- 2009
H.R. 25 (Linder)
Fair Tax Act of 2009. Introduced January 6, 2009;
referred to the Committee on Ways and Means. Companion to S. 296 (Chambliss).
Representative Linder introduced a similar bill in the 110 Congress, also
numbered H.R. 25. Section 103 of H.R. 25 would permanently repeal the
estate, gift, and generation-skipping transfer taxes by repealing Subtitle B of
the Internal Revenue Code. H.R. 25 would also repeal the income,
self-employment, and payroll taxes. It would replace these taxes with a
national sales tax, with the tax rate set initially at 23% for 2011. These
provisions would take effect January 1, 2011.
H.R. 99 (Drier)
Fair and Simple Tax Act of 2009. Introduced January
6, 2009; referred to the Committee on Ways and Means. Representative Drier
introduced a similar bill in the 110 Congress, H.R. 5105. Section 3 of
H.R. 99 would repeal the estate and gift taxes by repealing Subtitle B of the
Internal Revenue Code, effective in 2009. H.R. 99 also would make extensive
changes to the income tax.
H.R. 205 (Thornberry)
Death Tax Repeal Act. Introduced January 6, 2009;
referred to the committee on Ways and Means. Representative Thornberry
introduced a similar bill in the 110 Congress, H.R. 1586. H.R. 205 would
permanently repeal the estate, gift, and generation-skipping transfer taxes by
repealing Subtitle B of the Internal Revenue Code of 1986, effective upon
enactment.
H.R. 533 (Neugebauer)
Opportunity for Family Farms and Small Businesses
Act of 2009. Introduced January 14, 2009; referred to the Committee on Ways and
Means. H.R. 533 would permanently repeal the estate and generation-skipping
transfer taxes by removing the sunset provision from applying to Title V of
EGTRRA. H.R. 533 also addresses expensing for small business and allowing the
deduction for health insurance for self-employment tax purposes.
H.R. 1040 (Burgess)
Freedom Flat Tax Act. Introduced February 12, 2009;
referred to the Committee on Ways and Means and the Committee on Rules.
Representative Burgess introduced a similar bill in the 110 Congress, also
numbered H.R. 1040. Section 3 of H.R. 1040 would permanently repeal the
estate, gift, and generation-skipping transfer taxes by repealing Subtitle B of
the Internal Revenue Code, effective January 1, 2010.
In addition, H.R. 1040 would offer individuals and
persons engaged in business activities the chance to make an irrevocable
election to be subject to a new flat tax instead of the regular income tax and
alternative minimum tax. The flat tax would be levied at a rate of 19% for the
first two years after its election by the taxpayer, and at 17% for subsequent
years. The income tax provisions also would take effect in 2010.
H.R. 1763 (Latta)
Responsible Reinvestment Act of 2009. Introduced
March 26, 2009; referred to the Committee on Ways and Means. Section 2
of H.R. 1763 would permanently repeal the estate and generation-skipping
transfer taxes by removing the sunset provision from applying to Title V of
EGTRRA. The other sections of H.R. 1763 would provide a variety of tax benefits
to small business.
H.R. 1960 (Pitts)
Permanent Death Tax Repeal Act of 2009. Introduced
April 2, 2009; referred to the Committee on Ways and Means. H.R. 1960 would
permanently repeal the estate and generation-skipping transfer taxes by
removing the sunset provision from applying to Title V of EGTRRA.
H.R. 3463 (Brady)
Death Tax Repeal Permanency Act of 2009. Introduced
July 31, 2009; referred to the Committee on Ways and Means. H.R. 3463 would
permanently repeal the estate and generation-skipping transfer taxes by
removing the sunset provision from applying to Title V of EGTRRA.
H.R. 4270 (Frelinghuysen)
Common Sense Tax Relief Act of 2009. Introduced
December 10, 2009; referred to the Committee on Ways and Means. H.R. 4270 would
permanently repeal the estate and generation-skipping transfer taxes by
removing the sunset provision from applying to Title V of EGTRRA. H.R. 4270
would also make permanent six other tax provisions that are scheduled to
expire. The provisions of H.R. 4270 would take effect January 1, 2010.
H.J.Res. 48 (Paul)
Introduced April 30, 2009; referred to the Committee
on the Judiciary. Representative Paul introduced an identical measure in the
110 Congress as H.J.Res. 23. House Joint Resolution 48 proposes an amendment to
the Constitution that would repeal the sixteenth amendment (which allows
Congress to tax incomes without apportionment). Thereafter, Congress would no
longer be able to tax personal income, estates, or gifts. The amendment would also
prohibit the U.S. government from engaging in business in competition with its
citizens. The resolution allows seven years for ratification of the proposed
constitutional amendment, plus three years for the ensuing changes in tax law
to take effect.
Second Session -- 2010
H.R. 4529 (Ryan)
Roadmap for America's Future Act of 2010. Introduced
January 27, 2010; referred to the Committee on Ways and Means and, in addition,
to the Committees on Energy and Commerce, Education and Labor, Rules, the
Budget, and the Judiciary. H.R. 4529 would offer individual taxpayers the
choice of remaining under the current income tax system or electing to be taxed
under an alternative "Simplified income tax system." Estate and gift
taxes would continue to apply to those individuals who chose to remain under
the old tax system. But estate and gift taxes would no longer apply to
individuals who switched to the "Simplified income tax system." n44 Section 505 of H.R. 4529 would
permanently repeal the estate and gift taxes by repealing Subtitle B of the
Internal Revenue Code, effective January 1, 2011, under the simplified income
tax system. H.R. 4529 also addresses a broad range of other issues, including
major changes in the financing of health insurance and Social Security, the tax
code for individuals and business, job training, and the budget process.
H.R. 5109 (Kirk)
Small Business Bill of Rights. Introduced April 22,
2010; referred to the Committee on Ways and Means and, in addition, to the
Committees on Small Business, Financial Services, Rules, Education and Labor,
Energy and Commerce, the Judiciary, Oversight and Government Reform, and
Appropriations. Section 301 of H.R. 5109 would extend the sunset date
for the estate and gift tax provisions of EGTRRA by five years, from the
current expiration date of December 31, 2010, to December 31, 2015; this
provision would take effect January 1, 2011. Section 301 would thereby
extend the estate and gift tax laws that now apply in 2010 only, to calendar
years 2011 through 2015. That is, the estate tax and generation-skipping
transfer tax would remain repealed for the estates of decedents dying in, and
generation-skipping transfers made in, 2011-2015. Modified carryover basis
(instead of step-up in basis) would apply to assets transferred at death during
2011-2015. Also, the modified gift tax that is in place for 2010 would continue
to apply to gifts made in 2011-2015.
House Bills to Retain but Modify
the Estate Tax
First Session -- 2009
H. Con. Res. 85 (Spratt)
Concurrent Resolution on the Budget for Fiscal Year
2010. Introduced March 27, 2009; H.Rept. 111-60; committed to the Committee of
the Whole. The budget resolution for FY2010 as reported by the House Budget
Committee provided budget room for subsequent estate tax relief legislation in
two sections: Section 317, Current policy reserve fund for reform of the
Estate and Gift Tax, and Section 501, Policy on middle-class tax relief
and revenues.
Section 317(a) of H. Con. Res. 85 allows for a
decrease in revenues not to exceed $ 72.033 billion for fiscal years 2010
through 2014 and, for purposes of the Rules of the House, by up to $ 256.444
billion for fiscal years 2010 through 2019, "...by reforming the Estate
and Gift Tax so that only a minute fraction of estates owe tax, by extending
the law as in effect in 2009 for the Estate and Gift Tax."
Section 501 states that "It is a policy
of this resolution to minimize fiscal burdens on working families and their
children and grandchildren. It is the policy of this resolution to extend the
following tax relief consistent with current policy -- . . . (3) elimination of
estate taxes on all but a minute fraction of estates by reforming and
substantially increasing the unified tax credit." It states further that
the resolution supports the extension of $ 1.7 trillion in tax relief to
individuals and families relative to current law.
H.R. 436 (Pomeroy)
Certain Estate Tax Relief Act of 2009. Introduced
January 9, 2009; referred to the Committee on Ways and Means. Representative
Pomeroy introduced a similar bill in the 110 Congress, H.R. 4242.
H.R. 436 would raise the estate tax exclusion to $
3.5 million, effective in 2010. Under EGTRRA, the maximum estate tax rate was
reduced to 45%, for taxable estate values over $ 1.5 million, beginning in
2007. H.R. 436 would permanently extend this policy. However, H.R. 436 would
reinstate a 5% surtax on taxable estate value from $ 10 million up to the level
that is sufficient to phase out the benefits of the exclusion amount, as well
as the graduated tax rates. This would restore the policy that was in effect
from 1988 through 1997, under provisions of the Revenue Act of 1987, P.L.
100-203. (These provisions, contained in Section 3 of H.R. 436, differ
from those included in Section 3 of H.R. 4242 from the 110 Congress.)
H.R. 436 would repeal the subtitles of EGTRRA that
repeal the estate tax and generation-skipping transfer tax in 2010 (Subtitle A)
and that replace the step-up in basis with a modified carryover basis at death
in 2010 (Subtitle E). But H.R. 436 would remove the December 31, 2010, sunset
provision from applying to the remainder of Title V of EGTRRA. That means that
other changes that EGTRRA made to the estate and gift taxes would remain in
effect. This includes EGTRRA's replacement of the tax credit for state death
taxes with a deduction. It also includes the subordinate exclusion limit of $ 1
million for the gift tax. (These provisions, contained in Section 2 of
H.R. 436, are identical to those found in Section 2 of H.R. 4242 from
the 110 Congress.)
In addition, H.R. 436 would change the valuation
rules for certain transfers of nonbusiness assets and family-controlled
entities. These provisions are described in the entry for H.R. 436 under the
next heading, "House Bills Targeting Estate Tax Relief on Family-Owned
Farms, Small Businesses, or Conservation Easements."
The provisions of H.R. 436 would take effect the day
after enactment.
H.R. 498 (Mitchell)
Capital Gains and Estate Tax Relief Act of 2009.
Introduced January 14, 2009; referred to the Committee on Ways and Means.
Representative Mitchell introduced an identical bill in the 110 Congress, H.R.
3170. H.R. 498 would modify and extend the estate tax after 2009. It would
restore the unified credit for estate and gift taxes.
H.R. 498 would raise the combined estate and gift
exclusion amount to $ 5 million per decedent by 2015, in annual increments of $
250,000, over six years. The exclusion would be $ 3.75 million for decedents
dying in 2010, $ 4 million in 2011, $ 4.25 million in 2012, $ 4.5 million in
2013, $ 4.75 million in 2014, and $ 5 million in 2015. The $ 5 million figure
would be indexed for inflation each year after 2015. The inflation-adjusted
amount would be rounded to the nearest multiple of $ 50,000. For married
couples, H.R. 498 would permit the amount of the per-decedent exclusion that
was not used by the first spouse to die to carry over to the estate of the
surviving spouse. n45 H.R. 498 would
repeal the special deduction for qualified family-owned business interests
(QFOBI, Section 2057). It would also repeal both the EGTRRA deduction
and the pre-EGTRRA credit for state death taxes.
The rate of tax on the first $ 25 million of taxable
estate would be equal to the maximum capital gains tax rate in effect on the
decedent's date of death. The amount in excess of $ 25 million would be taxed
at twice that rate. The $ 25 million figure separating the two tax brackets
would be indexed for inflation each year after 2015. The inflation-adjusted
amount would be rounded to the nearest multiple of $ 50,000.
H.R. 498 would repeal several provisions of EGTRRA
that are scheduled to take effect in 2010: the repeal of the estate tax and
generation-skipping transfer (GST) tax; instituting a modified carryover basis
in place of the step-up in basis for inherited assets; the separate schedule of
graduated tax rates for the gift tax, capped at 35%; and limiting the tentative
gift tax credit to the exclusion equivalent of $ 1 million.
The estate tax provisions of H.R. 498 would take
effect on January 1, 2010. All of the estate tax provisions of EGTRRA are
currently scheduled to sunset on December 31, 2010. Under H.R. 498, the sunset
would continue to apply to the three subtitles of EGTRRA regarding conservation
easements, modifications to the GST tax, and the extension of time for payment
of the estate tax. But the sunset would no longer apply to the remaining estate
tax provisions of EGTRRA.
The Jobs and Growth Tax Relief Reconciliation Act of
2003 (JGTRRA; P.L. 108-27) reduced the maximum tax rate that applies to
long-term capital gains and dividends under the individual income tax (to 0% or
15%, depending on the amount of other income) through December 31, 2008. The
Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222) extended
the sunset date for two years, until December 31, 2010. H.R. 498 would
permanently extend the lower rates with respect to capital gains, but would not
extend them for dividend income.
H.R. 1986 (Childers)
Introduced April 21, 2009; referred to the Committee
on Ways and Means. H.R. 1986 would reinstate the unified estate and gift tax
credit and raise its exemption-equivalent value to $ 4 million per decedent. It
would lower the top tax rate to 40%, on taxable estate value over $ 1 million.
The bill would repeal the sections of EGTRRA that would have repealed the
estate and generation-skipping transfer taxes, established a modified carryover
basis instead of a step-up in basis for inherited assets, and established a
separate maximum tax rate for the gift tax, all scheduled to take effect in
2010. Other changes made to the estate and gift taxes by EGTRRA would remain in
place; the bill would remove EGTRRA's sunset provision from applying to them.
The provisions of H.R. 1986 would take effect in 2010.
H.R. 2023 (McDermott)
Sensible Estate Tax Act of 2009. Introduced April
22, 2009; referred to the Committee on Ways and Means. Representative McDermott
introduced a similar bill in the 110 Congress, H.R. 6499. H.R. 2023 would set
the applicable exclusion amount (exemption) at $ 2 million per decedent,
indexed for inflation after 2010. The exclusion for lifetime gifts and the
estate would once again be unified; the separate $ 1 million exclusion for
gifts introduced by EGTRRA would be repealed. The amount of the per-decedent
exclusion not used by the first spouse to die could be used by the estate of
the surviving spouse.
H.R. 2023 would make changes at the top of the
current schedule of graduated marginal estate tax rates. Three rate brackets
would apply to taxable estate values in excess of the exclusion amount.
Measured in 2010 dollars, a 45% rate would apply to taxable estate values from
$ 1.5 million to $ 5 million, a 50% rate from $ 5 million to $ 10 million, and
a 55% rate over $ 10 million. In essence, H.R. 2023 would stretch out the top
brackets of the pre-EGTRRA marginal tax rates. The two highest rates would take
effect at a higher taxable estate value than under current law, as shown in Table
4. The dollar amounts separating the rate brackets would be indexed for
inflation after 2010. The inflation-adjusted amounts would be rounded to the
nearest $ 10,000.
The credit for state death taxes that was in effect
prior to EGTRRA would be reinstated, and the deduction instituted by EGTRRA
would be terminated. The practice of step-up in basis for inherited assets
would be restored. The provisions of H.R. 2023 would take effect in 2010.
Table 4.Top Brackets of Tax Rate Schedule
Under H.R. 2023 (McDermott)
Compared with Pre-EGTRRA
Law
H.R. 2023
Marginal
Applies to Taxable Estate Values
Tax Rate
(bracket dividers would be indexed after 2010)
45% $ 1.5 million - $ 5 million
-- --
50% $ 5 million - $ 10 million
-- --
55% Over $ 10 million
[table continued]
Pre-EGTRRA Law
Marginal
Applies to Taxable Estate Values
Tax Rate (not indexed)
45% $ 1.5 million - $ 2 million
49% $ 2 million - $ 2.5 million
-- --
53% $ 2.5 million - $ 3 million
55% Over $ 3 million
_____________________________________________________________________________
Source: Pre-EGTRRA rates from 26
U.S.C. Sec. 2001(c) (2002).
H.R. 2658 (Capuano)
Introduced June 2, 2009; referred to the Committee
on Ways and Means. H.R. 2658 would set the applicable exclusion amount at $ 5
million per decedent, effective in 2010. The $ 5 million amount would be
indexed for inflation after 2010. The bill would repeal the one-year
termination of the estate tax, currently scheduled for 2010. The sunset clause
with respect to the other parts of Title V of EGTRRA (pertaining to the estate
and gift tax) would take effect on December 31, 2009, one year earlier than
scheduled under EGTRRA. This would have the effect of repealing the deduction
for state death taxes and restoring the pre-EGTRRA credit. Representative
Capuano introduced a bill in the 110 Congress, H.R. 3475, which included these
elements as well as other modifications to the law governing the estate and
gift taxes.
H.R. 3841 (Schrader)
Small Business and Family Farm Estate Tax Relief Act
of 2009. Introduced October 15, 2009; referred to the Committee on Ways and
Means. H.R. 3841 would set the applicable exclusion amount at $ 5 million per
decedent and freeze the maximum estate and gift tax rate at 45%, effective
January 1, 2010.
H.R. 3905 (Berkley)
Estate Tax Relief Act of 2009. Introduced October
22, 2009; referred to the Committee on Ways and Means. The provisions of H.R.
3905 would take effect January 1, 2009. Over the next 10 years, H.R. 3905 would
gradually increase the applicable exclusion amount from its level of $ 3.5
million in 2009, to $ 5 million for decedents dying in 2019 or thereafter. The
$ 5 million amount would be indexed for inflation in the years after 2019, in
increments rounded to the nearest $ 10,000. Over the same 10 years, the maximum
rate of the estate and gift tax would be lowered by one percentage point per year,
from 45% in 2009, down to 35% in 2019 and thereafter. Over the same time
period, the deduction for state death taxes would be phased out by 10
percentage points per year. The deduction would equal 100% of qualifying state
death taxes in 2009, 90% of state taxes in 2010, 80% in 2011, and so on,
reaching 0% for 2019 and thereafter.
H.R. 3905 enumerates the specific number values that
would apply for each of the 11 phase-in years, from 2009 until 2019. Table 5
presents the values for the applicable exclusion amount, the maximum tax rate,
and the percentage of state death taxes that could be deducted, according to
the calendar year of death.
Table
5. Phase-In Schedule Under H.R. 3905 (Berkley)
Percentage
of State
Applicable Death Taxes
Calendar
Exclusion that Could
Year of
Amount (in Maximum
Tax Be Deducted
Death
$ millions) Rate (%) (%)
2009 3.50 45 100
2010 3.65 44 90
2011 3.80 43 80
2012 3.95 42 70
2013 4.10 41 60
2014 4.25 40 50
2015 4.40 39 40
2016 4.55 38 30
2017 4.70 37 20
2018 4.85 36 10
2019 5.00 35 0
and thereafter
(indexed after 2019)
H.R. 4015 (McNerney)
Family Farm and Small Business Tax Relief Act of
2009. Introduced November 4, 2009; referred to the Committee on Ways and Means.
The estate tax provisions of H.R. 4015 would take effect in 2011. That means
that H.R. 4015 would permit the estate tax to lapse as scheduled for 2010 under
EGTRRA. It would then reinstate the estate tax in 2011, with an applicable
exclusion amount of $ 3.5 million from 2009 estate tax law. The $ 3.5 million
amount would be indexed for inflation starting in 2012. The 2009 top marginal
tax rate of 45% would be reinstated in 2011. (The rest of H.R. 4015 is
described under the next heading, "House Bills Targeting Estate Tax Relief
on Family-Owned Farms, Small Businesses, or Conservation Easements.")
H.R. 4154 (Pomeroy)
Permanent Estate Tax Relief for Families, Farmers,
and Small Businesses Act of 2009. Introduced November 19, 2009; referred to the
Committee on Ways and Means. The committee did not act on the bill before it
was considered on the House floor under the terms of H. Res. 941. The House
passed H.R. 4154 on December 3, 2009, by a vote of 225-200. This bill is
described in the earlier section of this report entitled "H.R. 4154,
Division A, the Permanent Estate Tax Relief for Families, Farmers, and Small
Businesses Act of 2009."
H.R. 4174 (Nye)
Tax Relief for Business Growth and Sustainability
Act of 2009. Introduced December 2, 2009; referred to the Committee on Ways and
Means. Title I of H.R. 4174 addresses the estate and gift tax. Its provisions
would take effect January 1, 2011. That means that H.R. 4174 would allow the
estate tax to be repealed for 2010, under the terms of EGTRRA. Effective in
2011, H.R. 4174 would set the applicable exclusion amount at $ 5 million per
decedent and the maximum estate and gift tax rate at 35%. The rest of H.R. 4174
is described under the next heading, "House Bills Targeting Estate Tax
Relief on Family-Owned Farms, Small Businesses, or Conservation
Easements."
House Bills Targeting Estate Tax
Relief on Family-Owned Farms, Small Businesses, or Conservation Easements
First Session -- 2009
H.R. 96 (Conaway)
Save Family-Owned Farms and Small Businesses Act of
2009. Introduced January 6, 2009; referred to the Committee on Ways and Means.
Representative Conaway introduced a similar bill in the 110 Congress, H.R.
6289. H.R. 96 would increase the maximum reduction in estate tax value for
farmland and other special use property under IRC Section 2032A from a
base value of $ 750,000 (indexed) to $ 1,850,000, effective in 2010. H.R. 96
also would restore the estate tax deduction for qualified family-owned business
interests (QFOBI, IRC Section 2057) and increase its base value from $
675,000 (not indexed) to $ 2 million, also effective in 2010. Both the $
1,850,000 and $ 2 million dollar amounts would be indexed for inflation after
2010.
H.R. 173 (Salazar)
Introduced January 6, 2009; referred to the
Committee on Ways and Means. Representative Salazar introduced a similar bill
in the 110 Congress, H.R. 1929. H.R. 173 would exclude from the gross estate
the adjusted value of qualified farmland that continues in farmland use by a
qualified heir, with no dollar limit. The provision would apply only if the decedent's
gross income from the trade or business of farming exceeded 50% of the
decedent's gross income for three or more of the decedent's last five taxable
years. In addition, either the decedent or a member of the decedent's family
would have had to own and materially participate in the operation of the
farmland for periods aggregating five or more years during the eight years
preceding the decedent's death. A recapture tax would be imposed if the
qualified heir disposed of any interest in the qualified farmland (other than
to a member of his family) or ceased to use the real property as a farm for
farming purposes. These amendments would take effect the day after enactment.
H.R. 436 (Pomeroy)
Certain Estate Tax Relief Act of 2009. Introduced
January 9, 2009; referred to the Committee on Ways and Means. Section 4
of H.R. 436 is identical to Section 4 of H.R. 4242, as introduced by
Representative Pomeroy in the 110 Congress. H.R. 436 would change the valuation
rules for certain transfers of non-business assets and family-controlled
entities. No valuation discount would be allowed for non-business assets and
the non-business assets would not be taken into account in determining the
value of the business entity. With the exception of working capital, passive
assets would generally not be considered as being used in the active conduct of
a trade or business and hence would be considered non-business assets. No
minority discount in the valuation of a business entity would be permitted
because the transferee did not have control of the entity if the transferee and
members of his or her family had control of the entity. These changes in
valuation rules would take effect upon enactment. (Language identical to Sec.
4 of H.R. 436 was introduced in the second session as Sec. 7 of S.
3533 (Sanders).) For a summary of other provisions of the bill, see the entry
on H.R. 436 in the preceding section on "House Bills to Retain but Modify
the Estate Tax." The provisions of H.R. 436 would take effect the day
after enactment.
H.R. 1328 (Timothy H. Bishop)
Farmland Preservation and Land Conservation Act of
2009. Introduced March 5, 2009; referred to the Committee on Ways and Means.
Representative Bishop introduced a similar bill in the 110 Congress, H.R. 6721.
H.R. 1328 would allow an unlimited exclusion from transfer taxes for certain
farmland and land of conservation value. The adjusted value of qualified farm
or conservation land would be deductible from the value of the gross estate.
(The adjusted value is the value in farm or conservation use, minus any related
mortgage debt.) However, the estate tax thus forgiven, plus interest, would be
due if the heir used the land for other purposes, or if any person acquired an
interest in the property that was not subject to a covenant restricting the
land's use to farm or conservation purposes.
In addition, income tax would be due on the deemed
capital gain. The interest in the property would be treated as being sold at
its fair market value at the time of the disposition or use for a non-approved
purpose. To calculate the heir's capital gain, the basis of the qualified farm
or conservation land would be the adjusted basis of the land on the decedent's
date of death. These same provisions would hold with respect to the gift tax
and the generation-skipping transfer tax.
Furthermore, the adjusted (reduction in) value
attributable to the qualified farm or conservation land would be a lien on the
land in favor of the United States. The lien would remain in effect until the
land is transferred to a qualified organization, the tax liability is
satisfied, or it is established that no further tax liability might arise. The
furnishing of security could be substituted for the lien. The provisions of
H.R. 1328 would take effect in 2009.
H.R. 3050 (Blumenauer)
American Family Farm and Ranchland Protection Act.
Introduced June 25, 2009; referred to the Committee on Ways and Means.
Representative Blumenauer introduced the same bill in the 110 Congress as H.R.
3708. H.R. 3050 would increase the limits on the amount that can be excluded
from the value of the gross estate with respect to land that is subject to a
qualified conservation easement. The dollar limit under IRC Section 2031(c)
would increase from its current-law value of $ 500,000, to $ 5 million under
H.R. 3050. The base applicable percentage would increase from 40% to 50%. The
percentage point reduction (for each percentage point or fraction thereof by
which the value of the qualified conservation easement is less that 30% of the
value of the land) would increase from 2.0 to 2.5 percentage points. The
provisions of H.R. 3050 would take effect on January 1, 2010.
H.R. 3524 (Mike Thompson with
Salazar)
Family Farm Preservation and Conservation Estate Tax
Act. Introduced July 31, 2009; referred to the Committee on Ways and Means. Section
2 of H.R. 3524 would exclude from the gross estate the value of qualified
farmland that continues in farmland use. To qualify, for five or more of the
eight years preceding the decedent's death, (A) the farmland must have been
owned by the decedent or a member of his family, and (B) either the decedent or
a member of the decedent's family must have materially participated in the farm
operation. The definition of "material participation" would be
expanded to include "any rental of real estate and related property
between the estate (or any successor) and any tenant who uses the property for
agricultural purposes. "Member of family" would be defined in terms
of whose lineal descendants are included. A recapture tax would be levied if
the heir disposes of any interest in the qualified farmland other than to a
member of his family, or if the heir ceases to use the property for farming
purposes. No government lien on the property would be permitted for the amount
of the tax forgiven, in contrast to H.R. 1328 (Bishop).
Section 3 of H.R. 3524 would provide a
similar exclusion for land subject to a qualified conservation easement. A recapture
estate tax would be imposed if the qualified heir disposes of any interest in
the land (other than to a family member) or the heir uses any portion of the
land in a manner which violated the terms of the conservation easement. Section
3 would strike from the current definition of qualified conservation
easement the prohibition on more than a de minimis use of the land for a
commercial recreational activity. Under Section 5 the dispositions
protected from recapture tax would be expanded, from those made only to family
members, to also include a disposition to anyone -- as long as the interest in
the real property remains subject to a qualified conservation easement. Tax
forgiveness would also be extended to any disposition or cutting down of
standing timber on qualified woodland if it is subject to a written forest
management plan or third-party audited forest certification system. The sale of
a conservation easement would not be considered a taxable disposition. The
definition of farming purpose would be expanded to include both
"silviculture," or the cultivation of forest trees, and
"creating, restoring, enhancing, or maintaining habitat for the purpose of
generating revenue from nature-oriented recreational opportunities, including
hunting, fishing, wildlife observation, and related fish and wildlife dependent
recreation."
The provisions of H.R. 3524 would take effect the
day after enactment.
In the second session of the 111 Congress,
Representative Thompson introduced a scaled-back version of H.R. 3524 as H.R.
5475, the Family Farm Estate Tax Relief Act of 2010. The main differences
between the two bills are highlighted in the description of "H.R. 5475 (Thompson)"
under the next subheading, "Second Session -- 2010."
H.R. 4015 (McNerney)
Family Farm and Small Business Tax Relief Act of
2009. Introduced November 4, 2009; referred to the Committee on Ways and Means.
Representative McNerney introduced a bill with a similar short title but quite
different content in the 110 Congress as H.R. 4042. (H.R. 4015 is also included
under the previous heading, "House Bills to Retain but Modify the Estate
Tax.")
Section 2 of H.R. 4015 would remove the
sunset provision of EGTRRA with respect to Title V (with some exceptions),
effective in 2011. That means that H.R. 4015 would permit the estate tax to
lapse as scheduled for 2010 under EGTRRA. It would then reinstate the estate
tax in 2011, with an applicable exclusion amount of $ 3.5 million from 2009
estate tax law. The $ 3.5 million amount would be indexed for inflation
starting in 2012. The 2009 top marginal tax rate of 45% would be reinstated in
2011.
Also effective in 2011, Section 3 of H.R.
4015 would restore the IRC Section 2057 deduction for qualified
family-owned business interests (QFOBI) and would substantially increase the
maximum value of the deduction from its pre-EGTRRA level of $ 675,000 to $ 8
million. Furthermore, it would index the $ 8 million amount for inflation
starting in 2012.
Section 4 of H.R. 4015 replicates, with
one addition, Section 2 of H.R. 3524 (Thompson). It provides an
unlimited exclusion from the gross estate of qualified farmland, as long as the
land continues in farmland use with the heirs. In the event that a recapture
tax is triggered because the land is no longer in farmland use, the adjusted
value of the farmland (as of the date of disposition) can be reduced by $ 8
million. The Secretary of the Treasury may not impose a lien on the estate of
the decedent or the qualified farmland for the purpose of guaranteeing the
payment of the recapture tax. The provisions of Section 4 would take
effect the day after enactment.
H.R. 4035 (Marchant)
Introduced November 5, 2009; referred to the Committee
on Ways and Means. H.R. 4035 would add a new section 2059 to Subtitle B
of the Internal Revenue Code, which addresses the estate and gift taxes. It
would permit the unused capital loss carryover from the decedent's last income
tax return to be claimed as a deduction from the gross estate in determining
the value of the taxable estate. (Under current law, as a consequence of the
step-up-in-basis rule for inherited assets, a loss in the value of an asset
during the decedent's period of ownership cannot be claimed as a capital loss
when an inherited asset is sold.) The provisions of H.R. 4035 would take effect
the day after enactment.
H.R. 4174 (Nye)
Tax Relief for Business Growth and Sustainability
Act of 2009. Introduced December 2, 2009; referred to the Committee on Ways and
Means. Title I of H.R. 4174 addresses the estate and gift tax. Its provisions
would take effect January 1, 2011. That means that H.R. 4174 would allow the
estate tax to be repealed for 2010, under the terms of EGTRRA. Effective in
2011, H.R. 4174 would set the applicable exclusion amount at $ 5 million per
decedent and the maximum estate and gift tax rate at 35%. (H.R. 4174 is also
listed under the previous heading, "House Bills to Retain but Modify the
Estate Tax.")
H.R. 4174 would revive the special estate tax
deduction for qualified family owned business interests (QFOBI), IRC sec.
2057(a). It would increase the maximum value of the family-business
deduction from $ 675,000 to $ 5 million. And it would permit the family
business deduction in addition to the applicable credit amount. That is, an
estate containing a qualified family owned business could potentially claim the
equivalent of up to $ 10 million of deduction. (Prior to 2004, the family
business deduction, in combination with the applicable exclusion amount
available to all estates, could not exceed $ 1.3 million altogether. As the
value of the general exclusion rose during the early 2000s, the residual value
of the QFOBI deduction declined. Under the terms of EGTRRA, in 2004, when the
per-decedent exemption reached $ 1.5 million, the QFOBI deduction was
repealed.) The QFOBI provisions would take effect in 2011.
H.R. 4174 would add a new section to the IRC
providing for a deduction from the value of the gross estate for the value (net
of mortgage indebtedness) of the decedent's principal residence. The deduction
would be limited to $ 2 million. This provision would take effect in 2011.
The bill would also make two changes to the income
tax law, to take effect in 2009. Title II of H.R. 4174 would provide a full
exclusion (rather than 50%) from gross income of capital gain from qualified
small business stock. It also would remove qualified small business stock as an
item of tax preference under the alternative minimum tax. Title III would
repeal the withholding tax on government contractors, effective upon enactment.
H.R. 4208 (Perriello)
Introduced December 3, 2009; referred to the
Committee on Ways and Means. H.R. 4208 would amend IRC sec. 2032A, which
addresses special use valuation of certain farm and trade or business property
under the estate tax. This section of the code permits a reduction in the value
of the property used to value the gross estate, from its fair market value down
to its value in its current use. Under current law, the maximum reduction
permitted in the property's value is $ 750,000 as of 1998, adjusted annually
for inflation thereafter. The maximum reduction in value for 2009 and 2010 is $
1 million. H.R. 4208 would reset the base value from $ 750,000 to $ 3.5 million
in 2010, indexed for inflation thereafter. The provisions of H.R. 4208 would
take effect the day after enactment.
Second Session -- 2010
H.R. 5475 (Thompson)
Family Farm Estate Tax Relief Act of 2010.
Introduced May 28, 2010; referred to the Committee on Ways and Means. H.R. 5475
is a scaled-back version of H.R. 3524, which was introduced by Representative
Thompson during the first session of the 111 Congress. (See the entry for
"H.R. 3524 (Mike Thompson with Salazar)" in the previous section.) Sec.
2 of H.R. 5475 (like H.R. 3524) would add a new section to the Internal
Revenue Code providing an unlimited exclusion from the value of the gross
estate for the adjusted value of qualified farmland. Under H.R. 5475, however,
the definition of qualified farmland is limited to real property (e.g., land
and buildings). (In contrast, under H.R. 3524 the definition of qualified
farmland also includes "other property related to the farm
operation.")
H.R. 5475 does not expand the definition of material
participation to include rental of the property (for a long list of farming
purposes) by the estate or successors thereto, as H.R. 3524 would. Nor does
H.R. 5475 change the definition of "member of family" which
enumerates the possible relationships for "qualified heirs" to have
to the decedent. (In contrast, H.R. 3524 would expand the definition of family
members who could be qualified heirs to include a variety of persons related to
the decedent by marriage, and their lineal descendents.)
Like H.R. 3524, H.R. 5475 would impose a recapture
tax if, at any time after the decedent's death, the qualified heir disposes of
any interest in the qualified farmland other than to a member of his family or
ceases to use the inherited property as a farm for farming purposes.
H.R. 5475's description of the amount of the
recapture tax differs from the definition included in H.R. 3524. H.R. 5475
would follow the rules in current law regarding the tax treatment of
dispositions and failures to use for qualified use, with the exception of the
existing special rule for the disposition of timber and the special rule for
woodlands. Instead, H.R. 5475 would exempt from the recapture tax the disposition
or severance of standing timber on woodlands subject to a forest stewardship
plan, if the heir abides with the rules of the plan for 10 years following the
inheritance. H.R. 3524 provides a similar exception for woodlands subject to a
written forest management plan, but does not include the requirement that heirs
continue that use for at least 10 years. H.R. 5475 does not expand the
definition of farm and farming purpose, whereas H.R. 3524 does.
Section 3 of H.R. 5475 would raise the
limits on the amount that could be excluded from the value of the gross estate
for land subject to a qualified conservation easement. It would raise the
dollar limit from its current value (since 2002) of $ 500,000 tenfold -- to $ 5
million. It would increase the alternative limit on the percentage of the value
of the land which is excludable from 40% to 50% and raise the phaseout rate
from 2 percentage points to 2.5 percentage points (for each percentage point by
which the value of the qualified conservation easement is less than 30% of the
unrestricted-use value of the land).
In contrast, Sec. 3 of the earlier Thompson bill,
H.R. 3524, would provide an unlimited exclusion from the value of the gross
estate for land subject to a qualified conservation easement. H.R. 5475 does
not include the provision found in H.R. 3524 (in Sec. 4) that would
permit more than a de minimis amount of commercial recreational activity on
land eligible for a qualified conservation easement. Nor would H.R. 5475 expand
the definition of farming purpose with regard to a qualified conservation
easement like H.R. 3524 does (in Sec. 5). n46
Senate Bills to Repeal the Estate
Tax
Some bills would permanently repeal the estate and
generation-skipping transfer taxes by removing the sunset provision from
applying to Title V of EGTRRA. Under this approach to permanent repeal, the
changes that EGTRRA made to the gift tax would remain in place. So would the
substitution of modified carryover basis instead of carryover basis for assets
transferred at death. Other bills would permanently repeal the estate, gift,
and generation-skipping transfer taxes by repealing Subtitle B of the Internal
Revenue Code (Estate and Gift Taxes). This approach would leave in place the
step-up in basis for assets transferred at death.
First Session -- 2009
S. 296 (Chambliss)
Fair Tax Act of 2009. Introduced January 22, 2009;
referred to the Committee on Finance. Companion to H.R. 25 (Linder). Senator
Chambliss introduced a similar bill in the 110Congress, S. 1025. Section 103
of S. 296 would permanent repeal the estate, gift, and generation-skipping
transfer taxes by repealing Subtitle B of the Internal Revenue Code. It also would
repeal the federal personal income, self-employment, corporate income, capital
gains, and payroll taxes. It would replace these taxes with a revenue-neutral
personal consumption tax on all retail sales of new goods and services, set
initially at the rate of 23% for 2011. These changes would take effect January
1, 2011.
S. 932 (Shelby)
Simplified, Manageable, And Responsible Tax Act
(SMART Act). Introduced April 30, 2009; referred to the Committee on Finance.
S. 932 is an updated version of S. 1040, introduced by Senator Shelby in the
110 Congress. Section 106 of S. 932 would permanently repeal the estate,
gift, and generation-skipping transfer taxes by repealing Subtitle B of the
Internal Revenue Code, effective January 1, 2010.
In addition, S. 932 would repeal the alternative
minimum tax and all income tax credits. It would replace the current income
taxes with a flat tax levied at a rate of 17% on both individuals and
businesses. There would be new definitions of taxable income for individuals and
businesses. The income tax changes would take effect in 2010.
S. 963 (Alexander)
Optional One Page Flat Tax Act. Introduced May 4,
2009; referred to the Committee on Finances. S. 963 is identical to H.R. 1040
(Burgess), except for a different short title. Section 3 of S. 963 would
permanently repeal the estate, gift, and generation-skipping transfer taxes by
repealing Subtitle B of the Internal Revenue Code, effective January 1, 2010.
In addition, S. 963 would offer individuals and
persons engaged in business activities the chance to make an irrevocable
election to be subject to a new flat tax instead of the regular income tax and
alternative minimum tax. The flat tax would be levied at a rate of 19% for the
first two years after its election by the taxpayer, and at 17% for subsequent
years. The income tax provisions also would take effect in 2010.
S. 1240 (DeMint)
Roadmap for America's Future Act of 2009. Introduced
June 11, 2009; referred to the Committee on Finance. Section 505 of S.
1240 would permanently repeal the estate and gift tax by repealing Subtitle B
of the Internal Revenue Code, effective January 1, 2010. This provision is part
of a large bill that would also reform health care, the Social Security system,
the tax code for individuals and businesses, and the budget process.
Senate Bills to Retain but Modify
the Estate Tax
First Session -- 2009
S. Con. Res. 13 (Conrad)
Senate Budget Resolution for FY2010, which was
adopted. See earlier discussion of "FY2010 Budget Resolution."
S. 722 (Baucus)
Taxpayer Certainty and Relief Act of 2009.
Introduced March 26, 2009, by Senate Finance Committee Chairman Max Baucus;
referred to the Committee on Finance. Title III of S. 722 addresses the estate
tax. It would make permanent the 2009 schedule of graduated estate tax rates,
with a top marginal rate of 45%. It would designate the $ 3.5 million exemption
amount from 2009 law as the benchmark applicable exclusion amount as of 2010.
It would index the $ 3.5 million dollar-amount for inflation after 2010
(rounded to the nearest multiple of $ 10,000). Any unused exclusion of a
deceased spouse could be added to the basic exclusion amount of the surviving
spouse.
S. 722 also would increase the aggregate reduction
in fair market value allowed under special use valuation (Section 2032A)
for estate tax purposes from $ 750,000 as of 1998, and indexed for inflation
after 1998, to $ 3.5 million in 2010, indexed for inflation thereafter. (This
potential reduction in taxable estate value of up to $ 3.5 million would be
worth even more than the basic exclusion of $ 3.5 million. The unified tax
credit corresponding to the basic exclusion per decedent is calculated based on
the graduated marginal tax rates. In contrast, the reduction in fair market
value would all be deducted at the maximum tax rate of 45%.) The estate tax
provisions of S. 722 would take effect in 2010. S. 722 would repeal certain
provisions of Title V of EGTRRA. The sunset provision would no longer apply to
the remaining portions of Title V of EGTRRA. The estate tax provisions of S.
722 would take effect in 2010.
Title I of S. 722 would index the AMT exemption for
inflation. Title II would make permanent many of the middle-class income tax
cuts enacted in 2001 and 2003 that are scheduled to sunset at the end of 2010.
Senator Baucus said that he did not intend for the legislation to be offset
under pay-as-you-go budget rules. n47
S. 2728 (Burr)
Introduced November 4, 2009; referred to the
Committee on Finance. S. 2728 would insert a new section 2032B into
Internal Revenue Code subtitle B, which addresses the estate and gift taxes.
The new IRC section would provide that the income approach be used to determine
value of qualified historic property for purposes of calculating the value of a
decedent's taxable estate. The value would be based on the net earnings of the
historic property. The provision would apply to real property that was
originally used for residential or farming purposes. It would also apply to
personal property held by the decedent that was associated with the building
throughout the 25year period prior to the decedent's death. The property must
be open to the public. The provision would not apply to any real property that
is used primarily for the sale, production, or manufacturing of products or for
lodging purposes. The provisions of S. 2728 would take effect the day after
enactment.
S. 2784 (Carper)
Introduced November 17, 2009; referred to the
Committee on Finance. S. 2784 would permanently extend the applicable exclusion
amount of $ 3.5 million per decedent and the top tax rate of 45% as found in
2009 estate tax law. The $ 3.5 million amount would be indexed for inflation
after 2010, with adjustments rounded to the nearest multiple of $ 10,000. S.
2784 would restore the unified credit for estate and gift taxes and would
repeal the separate, subordinate $ 1 million exclusion for lifetime gifts.
The applicable exclusion amount for a non-resident
decedent who is not a U.S. citizen would be $ 60,000 (in place of the current
value of $ 13,000); for non-citizens who are residents of U.S. possessions, the
applicable exclusion amount would be the greater of $ 60,000, or $ 175,000 (in
place of the current value of $ 46,800) multiplied by the percentage of the
decedent's gross estate that was situated in the United States at the time of
death.
Any unused unified credit of the deceased spouse (or
spouses) could carry over to the estate of the surviving spouse, if the
executor so elected on the estate tax return of the first spouse to die. Section
3 of S. 2784 is a sense of the Senate statement that any reduction in
federal revenues resulting from the provisions of, and amendments made by, this
act should be fully offset.
The provisions of S. 2784 would take effect January
1, 2010.
Second Session -- 2010
S. Con. Res. 60 (Conrad)
Concurrent Resolution on the Budget, FY2011.
Introduced and reported to the Senate by the Budget Committee on April 26,
2010. Sec. 304 of S. Con. Res. 60 provides for "Adjustments for the
Extension of Certain Current Policies" that would not need to be offset
under the pay-go rules. In particular, Sec. 304(c)(2) would permit
amendments to the estate and gift tax law that need not be offset, as long as
the changes in the law met the restrictions set forth in Section 7(d) of the
Statutory Pay-As-You-Go Act of 2010. (These restrictions are described in an
earlier section of this report entitled "Statutory Pay-As-You-Go Act of
2010.") n48
S. 3533 (Sanders)
Responsible Estate Tax Act. Introduced June 24,
2010; referred to the Committee on Finance. S. 3533 includes several proposals
previously introduced in other bills and three proposed by the Obama
Administration. It also introduces several new proposals of its own.
S. 3533 would make several substantial changes to
pre-2001 estate tax law. It would introduce four new brackets to the top of the
graduated tax rate schedule. Specifically, the 39% rate bracket would be
broadened to apply to taxable estate value from $ 750,000 up to $ 3.5 million;
the existing 41% and 43% rate brackets would be dropped; the existing 45% rate
would apply from $ 3.5 million only up to $ 10 million; a 50% rate would apply
from $ 10 million up to $ 50 million, and a 55% rate would apply to taxable
estate value over $ 50 million. In addition, S. 3533 would impose a 10% surtax
on the taxable amount in excess of $ 500 million. (For comparison, under 2009
law established by EGTRRA, the maximum marginal tax rate of 45% applied to all
of the taxable estate value over $ 1.5 million and there was no surtax. n49 )
Like several other bills to extend and modify the
estate tax, S. 3533 would repeal several sections of EGTRRA . S. 3533 would
repeal the subtitles of EGTRRA that repeal the estate tax and
generation-skipping transfer tax in 2010 (Subtitle A) and that replace the
step-up in basis with a modified carryover basis at death in 2010 (Subtitle E).
It would also repeal the sections of EGTRRA that cap the gift tax rate at 35%
in 2010 (Sec. 511(d)) and that establish a $ 1 million gift tax
exclusion (Sec. 521(b)(2)) in 2010, when the estate tax was in repeal.
S. 3533 also would remove the December 31, 2010, sunset provision from applying
to the remainder of Title V of EGTRRA. That means that the other changes that
EGTRRA made to the estate and gift taxes would remain in effect. This includes
EGTRRA's replacement of the tax credit for state death taxes with a deduction.
It also includes the subordinate exclusion limit of $ 1 million for the gift
tax. The foregoing provisions would take effect retroactively to January 1,
2010.
S. 3533 also includes the three
"loophole-closing" proposals advanced by the Obama Administration in
the President's budget proposals for both 2010 and 2011. Sec. 6 of S.
3533 would require consistent reporting of the value of assets for purposes of
the estate or gift taxes and the subsequent basis value used for purposes of
calculating capital gains under the income tax when the transferred assets are
sold by heirs or recipients of gifts.
Sec. 7 would modify the rules on
valuation discounts for purposes of determining the value in the gross estate
of a partial interest in a family-owned entity (so-called "minority
discounts"). The language of Sec. 7 is identical to Sec. 4
of H.R. 436 (Pomeroy). For a detailed explanation of the minority discount
provision, see the entry for H.R. 436 above under the subheading "House
Bills Targeting Estate Tax Relief on Family-Owned Farms, Small Businesses, or
Conservation Easements" "First Session -- 2009."
Sec. 8 would require a minimum term of
10 years for grantor retained annuity trusts (GRATS). The three
loophole-closing provisions would take effect after the date of enactment of S.
3533.
In addition, Sec. 4 of S. 3533 would raise
the dollar limit on the estate tax exclusion for property in special farm or
business use. Sec. 5 would raise the limits on the exclusion for land
subject to a conservation easement. These two sections are described in the
entry for S. 3533 under the next subheading, "Senate Bills Targeting
Estate Tax Relief on Family Owned Farms, Small Businesses, or Conservation
Easements" "Second Session -- 2010."
Motion to Commit H.R. 5297 (Kyl
and Lincoln)
H.R. 5297, as received in the Senate on June 18, 2010,
is the Small Business Jobs and Credit Act of 2010. On July 14, 2010, Senator
Kyl moved to commit H.R. 5297 to the Committee on Finance, with instructions
regarding estate tax provisions to be included in the bill. The text of the
motion is as follows:
Mr. Kyl (for
himself and Mrs. Lincoln) moves to commit
H.R. 5297 to
the Committee on Finance with instructions
to report
the same back to the Senate within 1 day
with changes
to provide a 35 percent estate tax rate
phased in
over 10 years, a $ 5,000,000 exemption
amount
phased in over 10 years and indexed for inflation,
a stepped up
basis for inherited assets, and, for
decedents
dying in 2010, an election under which
no estate
tax would be imposed and assets acquired
from the
decedent would receive a modified carryover
basis. The
Committee is further instructed to offset
the
difference in revenue loss between a permanents
45 percent
estate tax rate with a $ 3,500,000 exemption
amount and
the proposed changes described in the
preceding
sentence.
The proposed 10-year phase-in of the higher
exemption, from $ 3.5 million to $ 5 million, followed by indexing, and the
phase-down of the top tax rate from 45% to 35% are similar to part of
"H.R. 3905 (Berkley)," shown in columns 1 and 2 of Table 5.
Senate Bills Targeting Estate Tax
Relief on Family Owned Farms, Small Businesses, or Conservation Easements
Second Session -- 2010
S. 3533 (Sanders)
Responsible Estate Tax Act. Introduced June 24,
2010; referred to the Committee on Finance. Sec. of S. 3533 would provide
enhanced relief from the estate tax for property used in farming, trade, or
business. Sec. 5 would provide additional relief for land subject to a
conservation easement. These two sections are in addition to the provisions
described under the previous subheading, "Senate Bills to Retain but
Modify the Estate Tax," "Second Session -- 2010."
Section 2032A of the Internal
Revenue Code is known
as special-use valuation. It sets a dollar limit on the amount by which the
fair market value of the gross estate can be reduced because some real property
in the estate is being used as a farm or in a trade or business. That limit was
set at $ 750,000 for 1998 and indexed for inflation thereafter. Its value in
2010 is $ 1 million. Sec. 4 of S. 3533 would raise the benchmark value
to $ 3 million as of 2009, indexed for inflation thereafter.
Section 2031(c) of the IRC places an upper limit on the reduction
in the fair market value of the gross estate that may be taken with respect to
land subject to a conservation easement; defined as the lesser of two measures
-- a dollar limit or a percentage limit. Under current law, the dollar limit
has been $ 500,000 (not indexed for inflation) since 2002. Sec. 5 of S.
3533 would raise that dollar limit to $ 2 million as of 2010 (again, not
indexed for inflation). Current law also limits the percentage by which the
value of the land parcel can be reduced to 40%. S. 3533 would raise the
percentage limit to 60%. These provisions would take effect retroactively to
January 1, 2010.
Appendix A. Tax Policy Center Estimates for Alternative Estate Tax
Proposals in 2011
The Tax Policy Center (TPC) is a joint enterprise of
the Urban Institute and the Brookings Institution, located in Washington, D.C.
The TPC has developed a microsimulation model to estimate the likely effects of
alternative estate tax proposals. The TPC's model was used in 2008 to estimate the
effects of several of the estate tax proposals offered in the 110 Congress and
by the two presidential candidates. n50
The model was updated early in 2009 to reflect the large and widespread
reduction in asset values after August 2008. The TPC's updated model has been
applied to measure the likely effects of alternative estate tax proposals being
offered in 2009 by Members of the 111 Congress and by President Obama.
Number of Taxable Returns
Table A-1 presents the TPC's April 2008
estimates of the number of taxable returns in 2011 and Table A-2 the
accompanying amount of estate tax revenue, for four estate tax proposals:
[#186]
current pre-EGTRRA law, with a $ 1 million exemption
that is
not indexed, a top tax rate of 55%, plus
a 5%
surtax in a specified range;
[#186] a $
3.5 million exemption that is not indexed, with
a top tax
rate of 45%;
[#186] a $
3.5 million exemption that is indexed for inflation,
with a top
tax rate of 45%; and
[#186] a $ 5
million exemption that is indexed for inflation,
with a top
tax rate of 35%.
For each proposal, the first column of Table A-1
presents the TPC's estimate of the total number of taxable estate tax returns
in 2011. The second column measures taxable returns as a percent of projected
deaths for 2011. The third column presents the TPC's estimate of the number of
small business and farm estates expected to owe tax under the particular
proposal. (This includes taxable estates in which farm and business assets
total less than $ 5 million and make up at least half of the gross estate.) The
fourth column shows taxable small business and farm estates as a percent of all
taxable estates.
The TPC estimated that there would be 45,960 taxable
estate tax returns in 2011 under current, pre-EGTRRA law, with an exemption of
$ 1 million. This represents 1.76% of projected deaths, or 17.6 taxable estates
per 1,000 deaths. This falls within the recent historical range of 1% to 2%.
Under the proposals with a $ 3.5 million exemption, the estimated number of
taxable returns falls to 6,410 if the exemption is not indexed, and 6,160 if it
is indexed. Under the proposal with a $ 5 million exemption, there would be an
estimated 3,600 taxable returns.
Thus, raising the exemption from $ 1 million to $
3.5 million per decedent was projected to reduce the total number of taxable
estates by 86%, from 45,960 to 6,410 if not indexed or 6,160 if indexed for
inflation. Raising the exemption from $ 1 million to $ 5 million was projected
to reduce the number of taxable estates by 92%, from 45,960 to 3,600.
Table A-1. Alternative Estate Tax Proposals:
TPC Estimates of Number of Taxable Returns
and Number of Small Farm
and Business Estates Owing
Tax in 2011
Small
Farm and
Business
All Estates
Taxable Owing
Returns Tax
________________________________________
% of All
% of Taxable
Proposal Number Deaths
Number Returns
(exemption amount,
top tax rate)
_____________________________________________________________________________
Current law 45,960 1.76% 2,630
5.7%
$ 1 million exemption, 55% maximum
tax rate, 5% surtax: $ 10 m.
-$ 17.184 m.; credit for state
death taxes
$ 3.5 million exemption, not indexed,
45% maximum tax rate 6,410 0.25 100 1.6
$ 3.5 million exemption , indexed,
45% maximum tax rate 6,160 0.24 100 1.6
$ 5 million exemption, indexed,
35% maximum tax rate 3,600 0.14 40 1.1
_____________________________________________________________________________
Sources: Estimates of the number of all
taxable returns (column
1) and of taxable small business and farm estates
(column 3) from the
Urban-Brookings Tax Policy Center (TPC)
Microsimulation Model (version
0309-1). Preliminary results released April 7, 2009.
The four TPC
tables used were: Table T09-0196 for Current Law;
Table T09-0197 for
$ 3.5 Million Exemption, Indexed for Inflation and
45 Percent Rate;
Table T09-0198 for $ 3.5 Million Exemption and 45
Percent Rate (not
indexed); and Table T09-0199 for $ 5 Million Exemption,
Indexed for
Inflation and 35 Percent Rate. The tables are
available at
http://www.taxpolicycenter.org.
Each of the TPC's numbered tables is itself a set of
four tables. The
first of the four tables refers to all estate tax
returns filed. This
table is the source for the number of all taxable
returns cited in
column 1of the table above. The second of the four
tables tabulates
the subset of estates with "Farms and
Businesses Under $ 5
Million" as defined in note b below. The number
of all taxable
returns from this table is the source of the numbers
in column 3 in
the table above. Column 2, taxable returns as a
percent of deaths, was
calculated by CRS, assuming that the total number of
deaths in 2011
would be 2,611,000, as documented below in note c.
Column 4 was
calculated by CRS by dividing the number of small
business and farm
estates owing tax in column 3 by the total number of
taxable returns
in column 1, and multiplying the result by 100.
(The TPC generated two additional tables in each set
that are not used
here. The third table is labeled "Farms and
Businesses." It
tabulates the subset of estate tax returns in which
farm and business
assets represent at least half of the gross estate.
The fourth table
is labeled "Returns with any Farm or Business
Assets." This
subset of estate tax returns filed does not impose
any limits on the
absolute dollar value of the farm and business
assets or their
percentage of the gross estate.)
Notes: The proposals are listed in
decreasing order of the
estimated number of all taxable returns. The year
2011 refers to the
calendar year and the year of death. Estate tax
revenue is attributed
to the year of death rather than the year the estate
tax return might
be filed.
a. The TPC assumed that there is a deduction for
state death taxes
under all
of the alternatives other than current law for 2011,
which has a
credit for state death taxes.
b. The TPC defines "small farm and business
estates" as
estates in
which farm and business assets total less than $ 5
million and
make up at least half of the gross estate. This is
explained
in footnote 2 to the second TPC table, labeled "Farms
and
Businesses Under $ 5 Million," for each of the four
proposals.
c. Based on data from the U.S. Census Bureau, the
TPC projected that
the total
number of deaths in 2011 would be 2,611,000. Leonard E.
Burman,
Katherine Lim, and Jeffrey Rohaly, "Back from the
Grave:
Revenue and Distributional Effects of Reforming the Federal
Estate
Tax," Washington: Tax Policy Center, October 20, 2008,
last line
of Table 12 on p. 21.
With a $ 3.5 million exemption, the projected number
of taxable estates measured as a percentage of deaths is 0.25% or 2.5 per
thousand deaths. With a $ 5 million exemption, it is 0.14% or 1.4 per thousand
deaths. Both of these measures would be far below the recent historical levels
of having estate taxes due from 1% to 2% of decedents.
Members of Congress frequently express a special
concern for protecting the ability to transfer family-owned small businesses
and farms from one generation to the next. This is typically interpreted to
mean that the heirs should not have to sell the family business or farm in
order to pay the estate tax liability. To help evaluate this concern, the TPC
estimated the number of small business and farm estates likely to face estate
liability in 2011, under these same four estate tax proposals. n51
As shown in column 3 of Table A-1, the TPC
estimated that 2,630 small business and farm estates would owe tax in 2011
under current, pre-EGTRRA law. Under the proposals with a $ 3.5 million
exemption, the number would fall to 100. Under the proposal with a $ 5 million
exemption, the number would fall to 40. Measured as a percentage of all taxable
estates, the number of small business and farm estates expected to owe tax
falls from 5.7% under current law, to 1.6% under the proposals with a $ 3.5
million exemption, and to 1.1% under the proposal with a $ 5 million exemption
(column 4).
Estate Tax Revenue
Table A-2 shows TPC's estimate of estate
tax revenue in 2011 under current law, with a $ 1 million exemption and 55% top
tax rate, to be $ 35.0 billion. The proposals with a $ 3.5 million exemption
and a 45% top tax rate are projected to raise about half (53%) that revenue --
$ 18.6 million if the exemption is not indexed, and $ 18.4 million if it is
indexed. n52 The proposal with a $ 5
million indexed exemption and a 35% top tax rate is projected to raise $ 11.6
billion, or one-third the revenue expected under current law.
Table
A-2.Alternative Estate Tax Proposals:TPC Estimates of
Revenue in 2011
Relative to
Revenue
in 2011 Current
Proposal (exemption amount, top tax rate)a ($
billions) Law (%)
_____________________________________________________________________________
Current law $ 35.0 100%
$ 1 million exemption, 55% maximum tax rate,
5% surtax: $ 10 m. -$ 17.184 m., credit for
state death taxes
$ 3.5 million exemption, not indexed, 18.6 53%
45% maximum tax rate
$ 3.5 million exemption, indexed, 45% maximum 18.4 53%
tax rate
$ 5 million exemption, indexed, 35% maximum 11.6 33%
tax rate
_____________________________________________________________________________
Source: Calendar year revenue estimates
from the Urban-
Brookings Tax Policy Center Microsimulation Model
(version 0309-1).
For source of revenue estimate in column 1, see the
sources for
Table A-1. Revenue as a percent of current
law (column 2) was
calculated by CRS by dividing the amount in column 1
by 35.0
($ billion) and multiplying by 100.
Notes: The proposals are listed in
decreasing order of their
estimated tax revenue in 2011. Estate tax revenue is
attributed to the
year of death rather than the year the estate tax
return might be
filed.
a. The TPC assumed that there is a deduction for
state death taxes
under all
of the alternatives other than pre-EGTRRA current law for
2011.
Appendix B. Legislative Activity in Previous
Four Congresses, 2000-2008
Preceding EGTRRA
Even before the enactment of EGTRRA (P.L. 107-16) on
June 7, 2001, there were efforts in Congress to permanently repeal the estate
tax. The 106 Congress approved H.R. 8, the Death Tax Elimination Act of 2000,
but it was pocket vetoed by President Clinton on August 31, 2000. The House
sustained the President's veto. n53
Early in the 107 Congress, the House passed H.R. 8, the Death Tax Elimination
Act of 2001. Many provisions of that bill were included in EGTRRA. n54
Remainder of the 107 Congress
H.R. 2143, the Permanent Death Tax Repeal Act of
2001, was introduced on June 12, 2001, just days after the enactment of EGTRRA.
But the estate tax did not receive further congressional attention until the
spring of 2002, in the second session of the 107 Congress. On April 18, 2002,
the House passed an amended version of H.R. 586, the Tax Relief Guarantee Act
of 2002, part of which would have removed the sunset provision of EGTRRA and
thereby made permanent the repeal of the estate tax and all other provisions of
the 2001 tax cut law. On June 6, 2002, the House passed H.R. 2143 which would
have removed the sunset provision solely from the estate tax provisions of
EGTRRA (Title V). The House defeated the Pomeroy Democratic substitute
amendment which would have retained the estate tax but increased the exclusion
to $ 3 million per decedent in 2003.
On June 12, 2002, the Senate considered three
amendments offered to H.R. 8 regarding the estate tax. The Conrad Democratic
substitute amendment would have retained the estate tax but increased the
applicable exclusion amount to $ 3 million in 2003 and $ 3.5 million in 2009,
among other changes. The Dorgan amendment to the Democratic substitute
amendment would have provided a full tax deduction for family-owned business
interests and raised the applicable exclusion amount to $ 4 million in 2009 for
all estates, among other changes. The Gramm-Kyl (Republican) amendment was
identical to H.R. 2143. None of these amendments received the 60 votes needed
to waive the budget point of order as established by a unanimous consent
agreement. On September 19, 2002, the House approved a resolution, H. Res. 524,
which called upon the Senate to approve H.R. 2143 before the 107 Congress adjourned.
The Senate did not act on the bill. n55
The 108 Congress
All together, 26 measures addressing the estate tax
were introduced in the 108 Congress: 19 in the House and seven in the Senate.
The bills can be grouped into three broad categories. First, eight House bills
would have made the repeal of the estate tax permanent after 2010. Two Senate
joint resolutions would have expressed the sense of Congress that the number of
years during which the estate tax is repealed should be extended, pending permanent
repeal of the tax. Second, one House bill and three Senate bills would have
accelerated the repeal of the estate tax -- to 2003 or 2005. Third, 10 House
bills and two Senate bills would have retained but altered the estate tax. Some
would have lowered the tax rates. Some would have increased the exclusion
amount for all estates. Some would have forgiven the estate tax on family-owned
businesses and farms but imposed a carryover basis in calculating the capital
gain if the heir later sold the business. Some would have repealed the modified
carryover basis instituted by EGTRRA and returned to the step-up in basis rule
for assets transferred at death. One would have deposited revenues from the
estate tax into the Social Security trust funds.
The House approved H.R. 8, the Death Tax Repeal
Permanency Act of 2003 (Dunn) on June 18, 2003, by a vote of 264-163. H.R. 8
would have made the repeal of the estate and generation-skipping transfer taxes
permanent from 2010 onward by exempting the estate tax provisions (Title V)
from the sunset provisions of EGTRRA. Prior to its vote on H.R. 8, the House
debated and defeated the Pomeroy substitute amendment. That amendment would
have retained the estate tax but increased the exclusion amount to $ 3 million
per decedent, effective January 1, 2004. It included other changes to the
estate tax laws to partially offset the cost of increasing the exclusion
amount. The Senate did not take up either H.R. 8 or any of its own bills
addressing the estate tax. n56
The 109 Congress
n57
On April 13, 2005, the House passed H.R. 8, which
would have permanently repealed the estate tax starting in 2010. Over a year
later, on June 8, 2006, the Senate voted on cloture on a motion to proceed to
consider H.R. 8. The vote of 57-41 was three short of the 60 votes needed. On
June 16, Senate Majority Leader Bill Frist proposed that the House pass a
permanent estate tax reform compromise that could attract 60 votes in the
Senate. The Chairman of the Ways and Means Committee, William Thomas,
introduced two bills, H.R. 5638 and later H.R. 5970. Each was approved by the
House but never taken up by the Senate.
Chairman Thomas introduced H.R. 5638 on June 19,
2006. That bill contained an estate tax reform proposal and a timber capital
gains provision. The bill would have restored the unified estate and gift tax
exclusion and raised the applicable exclusion amount (from $ 3.5 million in
2009 under current law) to $ 5 million per decedent in 2010. On June 21, the
House Rules Committee adopted a manager's amendment that would have indexed the
$ 5 million exclusion to inflation after 2010, rounded to the nearest $
100,000. The bill would have lowered the tax rate on taxable assets up to $ 25
million to the tax rate on long-term capital gains (currently 15% but scheduled
to revert to 20% in 2011). For taxable assets over $ 25 million, the tax rate
would have been twice the prevailing capital gains rate. Married couples would
have been able to carry over to the estate of the surviving spouse any exclusion
unused by the first spouse to die. The deduction for state death taxes would
have been repealed. The bill also would have repealed the provisions of EGTRRA
that introduce a modified carryover basis regime starting in 2010; thus, the
step-up in basis rules would have continued to govern assets transferred at
death. The estate and gift tax provisions of H.R. 5638 would have taken effect
January 1, 2010, and been permanent. In addition, H.R. 5638 would have created
a new, temporary 60% income tax deduction for qualified timber capital gains
effective from the date of enactment through calendar year 2008. n58 The House passed H.R. 5638 by a vote of
269-165 on June 22, 2006.
The Joint Committee on Taxation (JCT) estimated that
the estate tax provisions of H.R. 5638 would have cost $ 282 billion over the
period FY2006-FY2016, n59 or 73% as much
as total repeal. (Indexing the exclusion amount added $ 3.25 billion to the
original cost estimate. n60 ) The timber
provisions were estimated to cost an additional $ 940 million.
Next, Chairman Thomas introduced H.R. 5970 on July
28, 2006. H.R. 5970 was called the "trifecta" bill. In addition to
reforming and extending the estate tax, the bill would have extended and
expanded a number of popular tax relief provisions that had expired at the end
of 2005 (the "tax extenders") and would have increased the minimum
wage. The bill also included a title of amendments to the Surface Mining
Control and Reclamation Act (SMCRA).
H.R. 5970 would have reunified the estate and gift
taxes. The estate tax exclusion would have increased (from $ 3.5 million in
2009 under current law) to $ 3.75 million in 2010 and by an additional $
250,000 each succeeding year until it reached $ 5 million in 2015. After 2015,
the $ 5 million exclusion would have been indexed for inflation. Married
couples could have transferred any of the exclusion amount unused by the first
spouse to die to the estate of the surviving spouse. As in H.R. 5638, the tax
rate on taxable assets up to $ 25 million would have been equal to the tax rate
on long-term capital gains (currently 15% but scheduled to revert to 20% in
2011). In contrast to H.R. 5638, the tax rate on taxable estate values over $
25 million would have been set in the law: at 40% in 2010, 38% in 2011, 36% in
2012, 34% in 2013, 32% in 2014, and 30% in 2015 and beyond. The $ 25-million
amount dividing the brackets would have been indexed for inflation, for the
first time in the history of the estate tax. The deduction for state estate
taxes would have been repealed. The estate and gift tax provisions of H.R. 5970
would have taken effect January 1, 2010, and been permanent. The House approved
H.R. 5970 by a vote of 230-180 on July 29, 2006. The JCT estimated that the
estate tax provisions of H.R. 5970 would have cost $ 268 billion over
FY2007-FY2016, n61 or about 69% as much
as total repeal.
While Congress did pass substantive tax legislation
in the final days of the 109 Congress, the act did not include any estate tax
provisions. n62
The 110 Congress
n63
In the 110 Congress, the concurrent budget
resolutions for FY2008 (S. Con. Res. 21) and for FY2009 (S. Con. Res. 70) both
provided "budget room" for extending the 2009 estate tax law, which
has an exclusion of $ 3.5 million per decedent and a top tax rate of 45%. But
separate legislation was needed to change the tax law. Although numerous bills
to either repeal or modify the estate tax were introduced, none was voted upon.
One bill that was enacted introduced a new form of
estate and gift tax -- a tax on the recipient (not the donor) of gifts and
bequests received from expatriates. That provision was part of the Heroes
Earnings Assistance and Relief Tax (HEART) Act of 2008, P.L. 110-245/H.R. 6081.
Author Contact Information
Nonna A.
Noto
Specialist
in Public Finance
nnoto@crs.loc.gov, 7-7826
Acknowledgments
Alex Marine assisted with formatting the tables and
the text.
FOOTNOTES:
n1
This report does not cover the
generation-skipping transfer (GST) tax, which applies to certain transfers at
death made to individuals who are more than one generation younger than the
decedent -- commonly bequests to grandchildren.
n2
Wojciech Kopczuk and Joel Slemrod, "Dying
to Save Taxes: Evidence from Estate-Tax Returns on the Death Elasticity," Review
of Economics and Statistics, vol. 85, no. 2 (May 2003), pp. 256-265.
n3
Joshua Gans and Andrew Leigh, "Toying
with Death and Taxes: Some Lessons from Down Under," Economists' Voice,
vol. 3, issue 6 (April 2006). Available at http://www.bepress.com/ev.
n4
Each of these bills is enumerated and briefly
summarized in the last section of this report, "Bills Introduced in the
111th Congress."
n5
Heather M. Rothman, "Kyl, Lincoln
Introduce Long-Awaited Estate Tax Plan; Vote Prospects Unclear," Daily
Tax Report, no. 134, July 15, 2010, p. G-5. The text of the motion to
commit is included in the TaxCore files of original sources linked to the
online edition of the Daily Tax Report for July 15, 2010.
The text of the motion to commit
is presented later in this report, in the section entitled "Motion to
Commit H.R. 5297 (Kyl and Lincoln)."
n6
"Owners of Family Businesses Urge
Congress To Repeal Estate Tax, Raise Exemption Levels," Daily Tax Report,
no. 212, Nov. 5, 2009, p. G-5. Heather M. Rothman and Christine Grimaldi,
"Permanent Estate Tax Bill Looking More Likely in House, Lawmakers
Say," Daily Tax Report, no. 222, Nov. 20, 2009, p. G-6.
n7
A married couple may give up to
twice the annual exclusion amount ($ 26,000 in 2009 or 2010) to an individual
in a single year without having it count against their lifetime gift
exemptions. In addition, there is an unlimited exclusion for gifts paying tuition
or medical expenses for another person directly to the provider, and for transfers
to a political organization for the use of the organization. There is also an
unlimited marital deduction for most gifts between spouses.
Only gift amounts in excess of
the annual exclusion need to be reported on a gift tax return. A gift tax
return is due by April 15 of the year after a potentially taxable gift is made,
even if no tax is currently due. No gift tax is due until cumulative taxable
gifts over the donor's lifetime exceed the lifetime gift exemption amount,
which is currently $ 1 million per donor under EGTRRA. For more information,
see CRS Report 95-444, A History of Federal Estate, Gift, and
Generation-Skipping Taxes and CRS Report 95-416, Federal Estate, Gift,
and Generation-Skipping Taxes: A Description of Current Law, both by John
R. Luckey.
n8
For a detailed explanation, written before
EGTRRA was enacted, see CRS Report RL30875, Step-Up vs. Carryover Basis for
Capital Gains: Implications for Estate Tax Repeal, by Nonna A. Noto.
n9
Internal Revenue Code (IRC) Section 1014,
relating to the basis of property acquired from a decedent.
n10
Or the value may be determined as of the
alternate valuation date, six months after the date of death, if that value is
lower.
n11
For an asset that has decreased in value since
the decedent purchased it, such as an automobile, or stocks or real estate after
a decline in the market, the stepped-up basis can be lower than the original
cost. As a consequence of the step-up-in-basis rule, a loss in value during the
decedent's period of ownership cannot be claimed as a capital loss when an
inherited asset is sold.
n12
For a discussion of this tradeoff, written
prior to the enactment of EGTRRA, see CRS Report RL30875, Step-Up vs.
Carryover Basis for Capital Gains: Implications for Estate Tax Repeal, by
Nonna A. Noto.
n13
For property acquired from someone dying after
December 31, 2009, the basis for the person acquiring the property is to be the
lesser of (1) the adjusted basis of the decedent, or (2) the fair market value
of the property at the date of the decedent's death.
n14
This limit may be increased by the amount of
unused built-in losses and loss carryovers that the decedent may have had.
n15
The minimum increments for indexing
adjustments are $ 100,000 for the $ 1.3 million amount, $ 6,000 for the $
60,000 amount, and $ 250,000 for the $ 3 million amount.
n16
Title IX or Section 901 of EGTRRA states that
the provisions of the act do not apply after December 31, 2010. The text of the
sunset clause is as follows:
TITLE IX -- COMPLIANCE WITH
CONGRESSIONAL BUDGET ACT
Sec. 901. Sunset of Provisions of Act.
(a) IN GENERAL. -- All provisions of, and amendments
made by, this Act shall not apply --
(1) to taxable, plan, or limitation years beginning
after December 31, 2010, or
(2) in the case of title V, to estates of decedents
dying, gifts made, or generation skipping transfers,
after December 31, 2010.
(b) APPLICATION OF CERTAIN LAWS. -- The Internal
Revenue Code of 1986 and the Employee Retirement
Income Security Act of 1974 shall be applied and
administered to years, estates, gifts, and transfers
described in subsection (a) as if the provisions
and amendments described in subsection (a) had never
been enacted.
n17
The Taxpayer Relief Act of 1997
(http://www.congress.gov/cgi-lis/bdquery/R?d105:FLD002:@1(105+34)) provided for
an "applicable exclusion amount" or exemption of $ 1 million for 2006
and beyond.
n18
Under the terms of H. Res. 941, adopted by the
House on December 3, the text of H.R. 4154 was engrossed as Division A, and the
text of H.R. 2920 was engrossed as Division B. The House had previously
approved H.R. 2920, the Statutory Pay-As-You-Go Act of 2009, by a vote of
265-166, on July 22. For further information, see the later section of this
report entitled "Statutory Pay-As-You-Go Act of 2009" and CRS Report
RL34300, Pay-As-You-Go Procedures for Budget Enforcement, by Robert
Keith.
n19
For a detailed explanation of Division A of
H.R. 4154, see U.S. Congress, Joint Committee on Taxation, Technical
Explanation of H.R. 4154, the "Permanent Estate Tax Relief for Families,
Farmers, and Small Businesses Act of 2009," 111 Cong., 1 sess.,
JCX-57-09, Dec. 3, 2009.
n20
Roll call no. 929.
n21
For Senate activity related to H.R. 4154, see
the unanimous consent request by Senator Pryor, Congressional Record,
daily edition, vol. 155, no. 190, Dec. 15, 2009, p. S13243. Also see statements
on December 16 by Senators Reid, Baucus, McConnell, and Kyl, Congressional
Record, daily edition, vol. 155, no. 191, Dec. 16, 2009, p. S13279 and pp.
S13281-S13283.
n22
U.S. Executive Office of the President, Office
of Management and Budget, Analytical Perspectives, Budget of the United
States Government, Fiscal Year 2010 (Washington: May 2009), p. 265.
n23
For more information on 2009 law, see the
earlier section of this report on "H.R. 4154, Division A, the Permanent
Estate Tax Relief for Families, Farmers, and Small Businesses Act of
2009." For a detailed explanation, see U.S. Congress, Joint Committee on
Taxation, Technical Explanation of H.R. 4154, the "Permanent Estate Tax
Relief for Families, Farmers, and Small Businesses Act of 2009," 111
Cong., 1 sess., JCX-57-09, Dec. 3, 2009.
n24
Economic Growth and Tax Relief Reconciliation
Act of 2001 (EGTRRA), P.L. 107-16.
n25
Jobs and Growth Tax Relief Reconciliation Act
of 2003 (JGTRRA), P.L. 108-27.
n26
U.S. Executive Office of the President, Office
of Management and Budget, A New Era of Responsibility: Renewing America's
Promise, Budget of the United States Government, Fiscal Year 2010
(Washington: February 2009), footnote 1 to Table S-5 (Bridge from Budget
Enforcement Act Baseline to Baseline Projection of Current Policy), p. 121.
Also in Updated Summary Tables, May 2009, Budget of the U.S. Government,
Fiscal Year 2010, footnote 1 to Table S-7.
n27
U.S. Executive Office of the President, Office
of Management and Budget, Analytical Perspectives, Budget of the United
States Government, Fiscal Year 2010 (Washington: May 2009), p. 265.
n28
U.S. Executive Office of the President, Office
of Management and Budget, Analytical Perspectives, Budget of the U.S.
Government, Fiscal Year 2011, Washington, February 2010, p. 170.
n29
For basic information about the budget
resolution, see CRS Report R40559, S. Con. Res. 13: The Budget Resolution
for FY2010, by Megan Suzanne Lynch and Mindy R. Levit.
n30
U.S. Congress, House, Concurrent Resolution
on the Budget for Fiscal Year 2010, Conference Report to accompany S. Con. Res.
13, 111 Cong., 1 sess., H.Rept. 111-89, Apr. 27, 2009, Sec. 421(a)
-- Adjustments for current policy.
n31
S. Con. Res. 13, Title IV (Budget Process),
Subtitle B (House Enforcement Provisions), Sec. 421(a)(2)(D) (Reform of
the Estate and Gift Tax) and Sec. 421(a)(3) (Condition). For news
coverage, see Heather M. Rothman, "Tentative Budget Agreement Includes $
764 Billion in Middle-Class Tax Cuts," Daily Tax Report, no. 79,
Apr. 28, 2009, p. G-4.
n32
The Council on Budget and Policy
Priorities (CBPP) estimated that if projected for FY2012-FY2021, the first 10
fiscal years in which the Lincoln-Kyl estate tax parameters would be fully in
effect, the 10-year cost would be $ 440 billion -- $ 110 billion higher than
the JCT estimate. Both the Joint Committee on Taxation's revenue-loss estimates
and the CBPP's estimates were reported in Chuck Marr and Jason Levitis,
"Lincoln-Kyl Estate Tax Amendment is Both Unnecessary and
Unaffordable," Center on Budget and Policy Priorities, revised Apr. 10,
2009, p. 4.
n33
Heather M. Rothman, "Tax Issues to Be
Major Component of Budget Conference Negotiations," Daily Tax Report,
no. 63, Apr. 6, 2009, p. G-3.
n34
The Council on Budget and Policy
Priorities (CBPP) estimated that the underlying Senate proposal (an extension
of 2009 estate tax law, with an exemption of $ 3.5 million per decedent and a
maximum tax rate of 45%) would cost $ 485 billion in lost revenue, plus $ 124
billion in added interest costs, for a total of $ 609 billion, over the 10
fiscal years FY2012-FY2021. (Again, the CBPP chose to estimate for the first 10
years after the new law would have full effect.) The CBPP estimated that the
Lincoln-Kyl proposal (with an exemption of $ 5 million per decedent and a
maximum tax rate of 35%) would cost $ 730 billion in lost revenue, and a total
of nearly $ 1 trillion when added interest costs are included, over the same
10-year period. By contrast, CBPP estimated that permanent repeal of the estate
tax would cost $ 1 trillion in lost revenue and $ 277 billion in increased interest
payments, for a total of nearly $ 1.3 trillion, over the same 10 fiscal years.
"The Estate Tax: Myths and Realities," Center on Budget and Policy
Priorities, revised Feb. 23, 2009, p. 1. Cited in Heather M. Rothman, House
Adopts FY 2010 Budget Plan; Senate Works Toward Completion" Daily Tax
Report, no. 62, Apr. 3, 2009, p. G-8.
n35
Jonathan Nicholson, "Hoyer Stands by
Statutory Pay-Go Demand; Conrad Sees Need for 'Larger Negotiation,'" Daily
Tax Report, no. 201, Oct. 21, 2009, p. G-9.
n36
Brett Ferguson, "House, Senate Pass
Budget Resolution Outlining Plans for $ 764 Billion in Tax Cuts," Daily
Tax Report, no. 81, Apr. 30, 2009, p. GG-1.
n37
Jonathan Nicholson, "Hoyer Stands by
Statutory Pay-Go Demand; Conrad Sees Need for 'Larger Negotiation,'" Daily
Tax Report, no. 201, Oct. 21, 2009, p. G-9.
n38
For further discussion of the act, see CRS
Report R41157, The Statutory Pay-As-You-Go Act of 2010: Summary and
Legislative History, by Robert Keith.
n39
Specifically, Sec, 7(d) of Title I of P.L.
111-139 provides for a maximum current policy adjustment equal to the
difference between (A) the revenues projected to be collected under the Internal
Revenue Code of 1986 (as scheduled on December 31, 2009, to be in effect); and
(B) what those revenue collections would have been if, on the date of enactment
of estate tax legislation, estate and gift tax law had instead been amended so
that the tax rates, nominal exemption amounts, and related parameters in effect
for tax year 2009 had remained in effect through December 31, 2011, with
nominal exemption amounts indexed for inflation after 2009.
n40
U.S. Congressional Budget Office, Federal
Estate and Gift Taxes, CBO Budget and Issue Brief, by Pamela Greene, Dec.
18, 2009.
n41
Many of these arguments were raised in the
debate on H.R. 4154 held on the House floor before the vote on the bill on
December 3, 2009. Congressional Record, daily edition, vol.155, no. 178,
Dec. 3, 2009, pp. H13472-H13480 and pp. H13482-H13493. For a discussion and
evaluation of these arguments, see CRS Report RL30600, Estate and Gift
Taxes: Economic Issues, by Donald J. Marples and Jane G. Gravelle.
n42
Two reports prepared for Congress
concluded that very few estates containing farms or small businesses lacked
sufficient liquid assets to pay any estate tax that may have been due. U.S.
Congressional Budget Office, Effects of the Federal Estate Tax on Farms and
Small Businesses, July 2005, cites evidence from estate tax returns filed
in 1999 and 2000. CRS Report RL33070, Estate Taxes and Family Businesses:
Economic Issues, by Jane G. Gravelle and Steven Maguire, cites evidence
from estate tax returns filed in 2006.
n43
See the earlier section on "Basis for
Inherited Assets" under "Current Law: The Economic Growth and Tax Relief
Reconciliation Act of 2001" for an explanation of step-up and carryover
basis.
n44
Joseph Rosenberg, "Preliminary Revenue
Estimate and Distributional Analysis of the Tax Provisions in 'A Roadmap for
America's Future Act of 2010,'" Urban-Brookings Tax Policy Center, Mar. 9,
2010, Summary of Key Tax Provisions, p. 2. Available at http://www.taxpolicycenter.org/UploadedPDF/412046_ryan_taxplan.pdf.
n45
The spousal carryover provision was first
introduced in the 109 Congress in H.R. 5638 and again in H.R. 5970. Both bills
were introduced by Representative William Thomas, chairman of the Ways and
Means Committee at the time. Both bills were approved by the House, but were
not voted upon in the Senate.
n46
For a critical analysis of H.R. 5475, see
Gillian Brunet and Chye-Ching Huang, Unlimited Estate Tax Exemption For Farm
Estates Is Unnecessary and Likely Harmful, Center on Budget and Policy
Priorities, June 29, 2010.
n47
Brett Ferguson, "Baucus Bill Would Index
AMT, Estate Tax, Make Permanent Middle-Class Tax Cuts," Daily Tax
Report, no. 57, Mar. 27, 2009, p. G-5.
n48
For an explanation of the allowance for
changes in the estate tax contained in the committee-reported budget
resolution, see U.S. Congress, Senate, Committee on the Budget, Concurrent
Resolution on the Budget, FY2011, Committee Print to Accompany S. Con. Res.
60, 111 Cong., 2 Sess., S.Prt. 111-45, Apr. 2010, pp. 20-22.
n49
The graduated marginal estate tax rate
schedule for 2009 is presented in CRS Report RL31092, Calculating Estate Tax
Liability During the Estate Tax Phasedown Period 2001-2009, by Nonna A.
Noto , Apr. 1, 2005, Table A.8, p. 16.
n50
Some of the TPC's 2008 estimates are presented
in CRS Report RL34374, Estate Tax Legislation in the 110 Congress, by
Nonna A. Noto, Table 3.
n51
As explained (in parentheses) at the end of
the source notes to Table A-1, the TPC provides estimates under three
different definitions of estates with farm or business assets. Table A-1
and Table A-2 present the results for just one of the three definitions.
n52
Because indexing would first take effect in
2010, in the case of a $ 3.5 million exemption, and in 2011, in the case of a $
5 million exemption, there would be relatively little measurable effect of
indexation in 2011.
n53
H.R. 8 was introduced in the 106 Congress on
February 25, 1999, on a bipartisan basis by Representatives Dunn and Tanner.
The version of H.R. 8 approved by the House Ways and Means Committee was an
amendment in the nature of a substitute offered in the committee by Chairman
Archer. This was the version approved by the House and the Senate. For further
description of H.R. 8 in the 106 Congress, and the Democratic substitute
amendments offered in its place, see CRS Report RS20592, Estate Tax
Legislation: A Description of H.R. 8, The Death Tax Elimination Act of 2000,
by Nonna A. Noto, available from the author upon request.
n54
H.R. 8 was reintroduced in the 107 Congress on
March 14, 2001, on a bipartisan basis by representatives Dunn and Tanner. It
was replaced by an amendment in the nature of a substitute by the Ways and
Means Committee on March 29 and passed by the House on April 4. For further
discussion of H.R. 8 in the 107 Congress, and the Democratic substitute
amendments offered in its place, see CRS Report RL30912, H.R. 8: The Death
Tax Elimination Act of 2001, by Nonna A. Noto, available from the author
upon request. For a brief description of H.R. 8 and three other bills
introduced in the first session of the 107 Congress to permanently repeal the
estate tax, see CRS Report RL30875, Step-Up vs. Carryover Basis for Capital
Gains: Implications for Estate Tax Repeal, by Nonna A. Noto.
n55
For additional information, see CRS Report
RS21224, Estate Tax: Legislative Activity in 2002, by Nonna A. Noto.
n56
For additional information, see CRS Report
RL31776, Estate Tax Legislation in the 108 Congress, by Nonna A. Noto.
n57
For additional information, see CRS Report
RL32818, Estate Tax Legislation in the 109 Congress, by Nonna A. Noto.
n58
For further explanation of the bill, see U.S.
Congress, Joint Committee on Taxation, Technical Explanation of H.R. 5638,
The "Permanent Estate Tax Relief Act of 2006" as introduced in the
House on June 19, 2006, 109 Cong., 2 sess., JCX-20-06, June 20, 2006.
Available at http://www.house.gov/jct/.
n59
U.S. Congress, Joint Committee on Taxation, Estimated
Revenue Effects of H.R. 5638, as Amended, Scheduled for Consideration by the
House of Representatives on June 22, 2006, 109 Cong., 2sess., JCX-23-06, June
22, 2006. Available at http://www.house.gov/jct/.
n60
U.S. Congress, Joint Committee on Taxation, Estimated
Revenue Effects of H.R. 5638, the "Permanent Estate Tax Relief Act of
2006", 109 Cong., 2 sess., JCX-21-06, June 20, 2006. Available at http://www.house.gov/jct/.
n61
U.S. Congress, Joint Committee on Taxation, Estimated
Budget Effects of H.R. 5970, the "Estate Tax and Extension of Tax Relief
Act of 2006 ('ETETRA')," as introduced in the House of Representatives on
July 28, 2006, 109 Cong., 2 sess., JCX-34-06, July 28, 2006, line I.
Available at http://www.house.gov/jct/.
n62
The Tax Relief and Health Care Act of 2006,
P.L. 109-432, enacted on December 20, 2006.
n63
Posted by Wesley J. Bailey, Associate Editor, Wealth Strategies Journal.
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