Two Federal Estate Tax Bills Introduced
This news is courtesy of Roger Brooks and the Association for Advanced Life Underwriting.
The introduction of two estate tax bills - one in the Senate (S. 3284) and the other in the House (H.R. 6499) - enhances the likelihood of ultimate (more probable in 2009 than 2008) estate tax reform.
Senate Bill - $3.5 Million Exemption. Senator Carper (D-DE) introduced S. 3284 with two co-sponsors, Senator Voinovich (R-OH) and Senator Leahy (D-VT). The bill would permanently fix the lifetime estate tax exemption at $3.5 million (indexed for inflation) and the estate tax marginal rate at 45% (essentially freezing the exemption and rate levels slated by the current Revenue Code to be in place in 2009). Significantly, this initiative represents the first time, within our memory, Senators from both parties have co-sponsored such estate tax reform legislation.
House Bill - $2 Million Exemption. Representative McDermott (D-WA), a member of the Ways and Means Committee, has, without co-sponsors, introduced H.R. 6499 which sets the lifetime exemption at $2 million (indexed for inflation) and adopts other major reform approaches, such as gift and estate tax reunification. Rep. McDermott’s bill would repeal portions of the Economic Growth and Tax Relief Reconciliation Act of 2001 related to the estate tax. Its major thrust would be the adoption of the $2million lifetime exemption, indexed for inflation. The bill would be applicable for all “estates of decedents dying and gifts made after December 31, 2008” and would reunify the gift and estate tax exemption/exclusion amounts. Instead of the applicable exclusion amount for the gift tax being $1 million, it would equal $2 million in 2009 and would be indexed for inflation going forward.
The exclusion amount for the estate tax would also be increased by any unused exclusion from a deceased spouse. This provision (not previously introduced in the current Congressional session, but often described as implementing spousal exemption portability) would allow the surviving spouse to increase his or her exclusion amount by the unused comparable amount of a deceased spouse, if the executor makes an election at the time of the deceased spouse’s death. Furthermore, the exclusion amount could be increased by the unused amount of more than one deceased spouse if the surviving spouse had been married more than once, but the total for each such deceased spouse would be capped at the basic exclusion amount of $2 million, indexed for inflation.
The rate for the estate tax would be 45% for all estates between $1.5 and $5 million, 50% for estates between $5 and $10 million, and 55% for estates over $10 million. Furthermore, the bill would reinstitute the credit for State death taxes and would repeal the deduction for such taxes. The credit was taken away in 2001 and the deduction was put in its place. This bill would restore the credit as it was prior to the 2001 amendment.
S. 3284, the bipartisan co-sponsored bill, would set the exclusion equivalent for the estate tax at $3.5 million, indexed for inflation. The maximum estate tax rate would equal 45%. These levels are known as Freeze 2009. A similar amendment proposal passed in the Senate, 99-1, during the debate on the FY2009 Budget.
In comparison to H.R. 6499, the gift and estate tax exclusions would not be reunified by S. 3284. The gift tax exclusion would remain at $1 million, but with a top rate of 35%. The bill would also simplify the process by which all taxable gifts preceding the decedent’s death are calculated to determine the available credit against the estate tax. It would amend current law, which requires the use of the gift tax rates “at the time of the gifts,” so that the applicable gift tax rates would be those “in effect at the decedent’s time of death.” Sen. Carper’s bill would also require that it be paid for. The provision is titled “Sense of the Senate Regarding Revenue Neutrality” and puts Sen. Carper on record that this bill should, in fact, not add to any federal budget deficits.
The Senate Finance Committee held a hearing on these proposals in April (see our Bulletin No. 08-33), but the House Ways and Means Committee has not had a similar hearing. It is unlikely that H.R. 6499 will pass the House before the November elections, but its existence may flush out Congressional attitudes on amendment proposals.
