Estate Tax Action on the Senate Floor

On July 25, intense activity in tax policy debate returned, and estate tax relief is back in the center of attention.

Floor Action Today – As we reported on July 19, Senate Democrats have removed the estate tax provisions from their one-year tax extender measure, which would extend current tax rates only for individuals earning under $200,000 per year ($250,000 for married couples). The estate tax provisions would have increased the rate from 35% to 45%, decreased the unified exemption from an indexed $5.12 million to an un-indexed $3.5 million, eliminated any risk of clawback and extended portability. While Democratic leaders have insisted the provisions were removed only because they believe “it’s more appropriate to litigate the estate tax separately”, conversations on and off Hill continue to indicate that the opposition of several friendly Democratic Senators to increases in the estate tax burden may have played a significant role. Among those reported to have raised concerns are Senators Mark Pryor (D-AR), Mary Landrieu (D-LA) and Kay Hagan (D-NC).

On July 25, Senate Republican Leader Mitch McConnell (R-KY) made an offer to Senate Majority Leader Harry Reid (D-NV) to allow up-or-down majority votes on three one-year tax measures: (1) the Senate Democratic measure mentioned above, (2) the Senate GOP plan, which would extend rates for all income levels and preserve the 35% estate tax rate and $5.12 million indexed exemption and (3) the Obama plan, which would extend rates only for individuals earning under $200,000 and increase the estate tax rate to 45% and reduce the exemption to $3.5 million. If Reid rejects the offer, a vote to proceed to the Senate Democratic measure would be likely to occur but highly unlikely to reach the necessary 60-vote threshold. Since the Senate Democratic and Republican plans have both originated in the Senate (and the Constitution requires tax bills start in the House), neither can become law but they represent an important engagement point in the tax policy battle.

Letter to the Hill – Policy and Taxation Group cosigned a letter to the Senate this week with our allies on the Family Business Estate Tax Coalition (FBETC) calling for congressional action to avoid a massive increase in the estate tax burden and ensure the maximum sustainable relief is achieved this year. The letter can be found here.

Important New Study – Later this week we will share information on a recent congressional study released today by Congressman Kevin Brady (R-TX), sponsor of the House death tax repeal bill (HR 1259), which details the “Cost and Consequences of the Federal Estate Tax”. Congressman Brady also shared the good news that his bill has reached its 218th cosponsor, signaling that not only does a majority of the House support full repeal, but a majority has actually stepped forward and taken the proactive step to cosponsor it.

JCT Estimates – In the event that the current parameters are extended for another year, House Ways and Means Committee Republicans report that the inflation-adjusted exemption is expected to rise to $5.23 million in 2013 (up $110,000 from 2012 as estimated by the Joint Committee on Taxation).

JCT has also released revenue estimates for the dueling one-year tax extension proposals from Senate Republicans and Democrats. The Senate Republican measure’s preservation of 35/5 was scored to cost $31.2 billion. The previously proposed Senate Democratic proposal for 45/3.5 was scored at $22.4 billion. According to these projections, one year of 35/5 would cost $8.8 billion more than one year of 45/3.5.

There’s a lot going on and a lot at stake for families. Policy and Taxation Group will continue to keep you posted.

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