By Bernie Becker - 07/17/12 09:00 AM EDT
Business and farm groups are making a determined effort to rein in the estate tax before it expands significantly at the end of the year.
Thanks to a deal approved in late 2010, the estate tax is among a long list of fiscal issues awaiting action from Congress, including the extension of the George W. Bush-era tax rates and budget sequestration.
“It’s a little trickier than in past years,” said Mark Maslyn, executive director for public policy at the farm bureau. “It is something we’ve anticipated and expected. And it’s only going to get more intense as we go to the end of the year.”
The battle lines are already forming over the estate tax, which has been through wild swings in recent years.
Business and farm groups, and many congressional Republicans, would prefer to see the estate tax abolished.
But with that an unlikely scenario, at least this year, GOP lawmakers are instead pushing to extend the estate tax parameters included in the 2010 deal. That deal set the maximum tax rate at 35 percent with a $5 million exemption, indexed for inflation after 2011.
Senate Democrats, meanwhile, have prepared a broad tax-plan package that would return the estate tax to the 2009 levels of a 45 percent rate for estates, with a $3.5 million exemption, while extending Bush-era rates on family income up to $250,000.
That Democratic plan is expected to get a Senate floor vote perhaps as soon as next week, while the House GOP proposal that would extend all the Bush-era rates and the current estate tax parameters is likely to see a vote shortly before the August recess.
If lawmakers do nothing before year’s end, the estate tax will revert in 2013 to a $1 million exemption and a 55 percent rate, levels that independent analysts say would hit many more estates than either the current Democratic or Republican proposals. That would come just three years after there was no estate tax at all in 2010.
NFIB and the farm bureau are just two of the more than 50 groups in the Family Business Estate Tax Coalition, which is aiming for full repeal. The groups are urging lawmakers to give businesses some certainty over the tax levels as soon as possible, arguing that estate tax planning is expensive and drains resources away from day-to-day operations and needed investments.
“One thing that we are trying to educate members on is: We don’t want estate tax to get sort of lost in the shuffle at the end of the year,” Matt Turkstra, manager for legislative affairs at NFIB, told The Hill.
Some congressional Republicans have become more vocal on the issue of late, with Sen. Orrin Hatch (Utah), the ranking Republican on the tax-writing Finance Committee, calling the estate tax a deadweight that stands in the way of economic growth. Republicans have also noted that the economy is growing more slowly than it was in December 2010, when the extension was hammered out.
But while tax rates on income and capital gains and looming automatic cuts are expected to take center stage at the end of the year, Sen. John Thune (R-S.D.) said lawmakers from agricultural states are deeply concerned about allowing current estate tax rates to rise.
“It’s possible, I suppose, that when you get to this pileup at the end of the year and you have all this other expiring tax law, that this thing sort of falls by the wayside,” Thune, a member of GOP leadership and the sponsor of a bill to repeal the estate tax, told The Hill.
But Thune, also a Finance member, added, “If we snap back to that level or move backwards in terms of policy, I think it will be very, very harmful to the economy.”
Thune’s bill to permanently repeal the estate tax has garnered the support of the vast majority of Senate Republicans but none of the chamber’s Democrats.
Across the Capitol, a repeal measure from Rep. Kevin Brady (R-Texas) has been joined by roughly half of the House, including a handful of fiscally conservative Blue Dog Democrats.
But Democrats note that lowering the exemption from the indexed $5 million to $3.5 million would hit a comparatively few number of estates and cost the Treasury billions during a period of steep deficits.
The nonpartisan Tax Policy Center estimated last year that the $3.5 million exemption would ensnare around 7,000 or 7,500 estates in 2013, while the $5 million level would hit around 4,000.
Democrats have said that the estate tax has been wrapped up with other issues before, and some in the party have suggested they would take a hard line in tax negotiations at the end of the year.
Still, the NFIB’s Turkstra said his group has heard bipartisan support for not allowing the estate tax to slip back to the $1 million exemption.
That level, according to the Tax Policy Center, would force an estimated 52,500 estates to pay the tax in 2013.
And Maslyn noted that his group and other members of the coalition have to reach out to scores of new members elected in 2010 — many of whom might be sympathetic to their argument, but have never experienced lame-duck policymaking.
“It’s certainly not the way to set policy in a perfect world,” Maslyn said of the looming year-end pileup. “You’d hope there’s some design and forethought and attention behind it all.”