Frustrations grow over lawmakers’ failure to tackle repeal of estate tax

Congressional inaction on the estate tax is becoming a political problem as a growing number of constituents demand action, according to congressional staff.

Calls are increasing in number and intensity as family-owned businesses and farmers grapple with the uncertainty of how Congress might address the issue. 

The House approved an estate tax for 2010 last year, but the Senate never took action. As a result, the tax phased out on Jan. 1 but is scheduled to return at a higher rate in 2011.

Solutions range from replacing the current repeal of the tax with 2009 law, which is a top tax rate of 45 percent on assets worth over $3.5 million ($7 million for couples), to keeping the levy repealed and providing a very high exemption so heirs aren’t taxed for liquidating their inheritance. 

The nonpartisan Tax Policy Center estimates that less than 1 percent of all estates would be subjected to the levy at 2009 levels. 

But opponents of the levy say it is the preparation to avoid the tax — not the tax itself — that is causing the anxiety. Estate planners must create succession plans for each legislative eventuality, which is costly and time-consuming for entrepreneurs. 

There’s little sign that the Senate will take action soon. 

Senate Majority Leader Harry Reid (D-Nev.) and Minority Whip Jon Kyl (R-Ariz.) are working on a fix, but so far their effort has failed to produce a consensus. 

Some observers hope the midterm elections in November will serve as an incentive for action.

“We understand as we get closer to the election there will be pressure on various members of the House and Senate [to address the estate tax],” said Dick Patten, executive director of the American Family Business Institute, a group advocating permanent repeal of the federal estate tax.

All of the legislative solutions proposed pose political risk to Senate leaders.

Retroactively enacting the 2009 estate tax to Jan. 1 raises constitutional questions. 

Benefactors can claim the tax is unconstitutional since it was not in effect when the estate was created. They could file endless lawsuits to fight paying the tax. 

The longer Congress postpones its decision on how to handle the issue, the more estates that would be subject to a retroactive levy, which would likely incite additional litigation. 

Doing nothing about the current repeal also has political consequences. 

Barring congressional action, the levy jumps to pre-2001 levels that sock estates worth more than $1 million with a tax that tops out at 55 percent. Allowing this outcome makes lawmakers vulnerable to accusations of raising taxes on businesses at a time of economic uncertainty. 

The $85 billion jobs bill created by Senate Finance Committee Chairman Max Baucus (D-Mont.) and ranking member Chuck Grassley (R-Iowa) included a framework for proceeding with the estate tax that was agreed to by Republicans and Democrats, but Reid decided to nix that deal in favor of moving his smaller $15 billion jobs bill. 

Republicans say that because Reid moved the smaller bill, there’s no longer a deal. 

“That agreement was violated with the four-piece truncated version of the HIRE bill last week,” a Senate tax aide told The Hill. 

Kyl recently demanded that a process for how to deal with the estate tax be agreed to before the Senate takes up legislation extending several expired tax and spending measures, but that call has apparently fallen by the wayside. 

Kyl’s spokesman on Monday told The Hill there never was a link between agreeing on a process for the tax and moving extender legislation, which was taken up on Monday.

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