Domestic Taxes

Estate tax may become another nail-biter debate when lawmakers return

Interest groups on both sides of the estate tax debate are unsure how
the issue will play out when lawmakers return to Washington for the
post-election lame-duck session.

“I hear all sorts of things, which means I hear nothing,” Craig
Jennings, a federal fiscal policy analyst at OMB Watch, told The Hill.

{mosads}“Who knows what’s going to happen?” he added.

Lawmakers face a blistering tax agenda in the lame-duck session that,
left undone, will cost taxpayers trillions of dollars beginning next
year. One issue is how to stop the estate tax from returning to
pre-2001 levels, which means estates worth more than $1 million are
hit with a tax that could be as high as 55 percent.

The levy is currently repealed but, barring congressional action, it
will return next year to the aforementioned level. Republicans and
more than a few Democrats oppose returning to pre-2001 law, but there
doesn’t seem to be a consensus for how the tax should be modified.

“Unfortunately, I think there is a pretty good chance that they just
run it out and let [the repeal] expire,” said Phil Kerpen, vice
president of policy at Americans for Prosperity.

Democratic lawmakers were supposed to have wrapped an estate-tax fix
in legislation extending the middle-class tax cuts enacted under
President Bush.

Sources close to the matter said the fix resuscitated 2009 law, which
placed a 45 percent tax on estates exceeding $3.5 million. The levy
would be indexed for inflation so fewer people would become ensnared
by it.

But Democratic leaders opted to delay action on the Bush-era tax cuts
until after the election, thereby punting a resolution on the estate
tax into the lame-duck session.

“Inaction is certainly possible, particularly in the lame-duck, which
tend to be unproductive,” Chuck Marr, director of federal tax policy
at the Center on Budget and Policy Priorities, told The Hill. “We
certainly saw last year that inaction is possible.”

Lawmakers last year vowed to fix the estate tax before January of this
year, but then blew past the deadline and promised that the situation
would be addressed in the new year. Ten months have passed and
Democrats still have not resolved the issue.

“I thought at the end of 2009, ‘they’re never going to let this thing
lapse,’” Jennings said. “Here we are in [October of] 2010
without any estate tax, with several billionaires, most notably George
Steinbrenner, passing away. We’re talking hundreds of millions of
dollars in forgone revenue because Congress failed to act.”

Kerpen believes the repeal should be continued into next year and was
disappointed when Senate Minority Leader Mitch McConnell (R-Ky.)
included in his recently introduced tax bill a compromise by Sens. Jon
Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.) that taxes estates over $5
million at 35 percent.

Given the fact the Republicans could pick up a number of Senate seats
in November, Kerpen believes McConnell should have extended the
current repeal on the tax into 2011.

“I think it was a tactical mistake for Republicans to open this round
of the debate with the Kyl-Lincoln compromise,” he said. “I think they
should have started with zero. They would have been in a much stronger
position — both because they would have had the moral and economic
high ground and also just in tactical terms they’d have more room to

McConnell’s office did not respond to questions on the fate of the
estate tax in the upcoming lame-duck.

Several compromises on the estate tax have been floated, which include
doing a retroactive fix. Another would exempt farmers from the tax,
which Jennings believes could be subjected to abuse.

“There’s definitely not universal support for it, because exempting
farms in the way [the bill] is written could create some pretty big
loopholes,” he said, adding that indecisions surrounding the tax only
increase the odds that a fix will not be in place by year’s end.

“It’s not a sure thing that they’ll actually get around to doing
anything about it,” he said. “It’s conceivable that we end up with the
2001 estate tax.”

Tags Mitch McConnell

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