A bill that would make the 2009 estate tax level permanent — 45 percent and $3.5 million per person exemption — has been approved by the House of Representatives.
The bill passed by a 225-200 vote, with all Republicans opposed. Under current law, the estate tax is scheduled to go away in 2010, but revert to a 55 percent tax rate and a $1 million/person exemption in 2011. The legislation faces an uncertain future in the Senate.
H.R. 4154 was introduced by Rep. Earl Pomeroy, D-N.D., and does not index the exemption level for inflation. Nor does it include a “portability” provision, which would permit a surviving spouse to carry over any credit left over by the first spouse to die.
“The purpose of this bill is to establish clarity and certainty in the tax code for the estate tax while exempting 99.7 percent of the estates in this country from this estate tax altogether,” said Pomeroy, who introduced it in November.
The National Cattlemen’s Beef Association called the Pomeroy bill “a disservice to America’s family farmers and other small businesses.” NCBA President Gary Voogt said: “By keeping a flawed law in place, Congress will simply extend our problems with the current system into the future.”
NCBA cites USDA Economic Research Service figures that farm estates are five to 20 times more likely to incur estate taxes than other estates. In fact, one in 10 farm estates (farms with sales of $250,000 or more annually) are likely to owe estate taxes, sometimes referred to as “death taxes,” in 2009.
“Farmers and ranchers are often forced to sell off land, equipment, or even the entire ranch just to pay off tax liabilities. This is money that could otherwise be re-invested to grow the family business and hand it down to future generations,” NCBA says.
“This is not a tax on the ‘wealthy elite,’” Voogt says. “It is a huge burden — and in some cases, a death sentence — on family farms and small businesses.”
NCBA supports a dual-track approach, which includes additional relief and an overall exemption for agriculture.
In a news release, officials at the Association for Advanced Life Underwriting, Falls Church, Va., which expected the House to pass the bill, said there’s a greater likelihood that the Senate will include reunification (of the estate and gift tax), portability and indexing for inflation in its version of the bill.
AALU officials cite S. 722, introduced in the Senate by Sen. Max Baucus, D-Mont., and S. 2784, introduced by Sen. Tom Carper, D-Del., both of which would add reunification and portability, as well as index the estate tax rate for inflation.
An amendment added to the 2010 budget resolution passed by the Senate included the indexing, portability and reunification provisions. That amendment by Sens. Blanche Lincoln, D-Ark., and Jon Kyl, R-Ariz., would have raised the exemption level to $5 million per person. The Senate voted 51-48 to adopt the amendment, but it didn’t survive conference.
Some Democrats said the legislation represents a compromise between Republicans’ preference for repeal and a bipartisan plan to extend the current estate tax through 2010 and, over the following 10 years, reduce the rate from 45 percent to 35 percent while raising the exemption from $3.5 million to $5 million for individuals.
The legislation now moves to the Senate where prospects are unclear because a health care bill is on the floor for the foreseeable future and key senators prefer alternate plans. Finance Committee Chairman Baucus favors indexing the 2009 exemption levels to prevent the tax from affecting the middle class in future years.
Sens. Lincoln and Kyl have proposed gradually bringing the top tax rate down to 35 percent and increasing the exemption to $5 million and then indexing the exemption for inflation.