House Passes Permanence Instead of One-Year Freeze

Dear Supporters:

Over the last three months, we have worked strategically to move House leaders away from legislative proposals that would merely extend the current estate tax for one year or eliminate important valuation discount planning techniques. We are thus pleased to report that the House today passed an estate tax reform bill that provides certainty and permanency without increasing the estate tax burden on families. The House passed the clean, permanent freeze (H.R. 4154) by a vote of 225-200. The vote followed the failure of a motion to recommit 187-233, a procedural motion that sought to repeal the estate tax in 2010 and 2011.

Predictably, progressives assailed the bill as a tax cut for wealthy families while they were being asked to expend increased resources for a troop surge in Afghanistan. Meanwhile, Republicans said the bill didn’t go far enough.

While the Family Business Estate Tax Coalition has continued to speak with one voice in support of the Lincoln/Kyl and Berkley/Brady reform proposals and on the need for estate tax reform that provides certainty, permanency and relief, individual organizations have taken varying positions with respect to H.R. 4154. The National Federation of Independent Business and the National Farm Bureau remained neutral, the U.S. Chamber of Commerce supported it, and the National Association for Manufacturers was opposed. As you know, we did not have a large public role, but instead worked quietly to minimize the risk for our families by undermining the one-year freeze and threat to valuation discounts and established planning techniques.

This is the critically important first step in what is likely to be quick process over the next few weeks. Now attention moves to the Senate, where Finance Committee Chairman Max Baucus (D-MT), a proponent of ultimate repeal, and Budget Committee Chairman Kent Conrad (D-ND) insisted the chamber must act by the end of the year and indicated they would like to pass a permanent freeze that would also index the exemption for inflation. Senators Tom Carper (D-DE) and George Voinovich (R-OH) recently introduced S. 2784 as a stand-alone measure to enact such reform. Policy and Taxation Group has long advocated that any exemption relief should be accompanied by substantial rate relief and that acceptable estate tax reform must not increase the burden on families.

Senators Lincoln and Kyl are plotting their strategy to seek increased estate tax relief with hopes that a better deal for families could be worked out in conference. They may phase in their proposal like Berkley/Brady, which would cut the $87 billion cost roughly in half and reduce the risk of harmful offsets. We continue to argue that estate tax reform must not be offset by increases in the burden on families, and particularly not those that would result from changes to valuation rules or GRATs.

Passage of permanent reform increases the chances that we can avoid a one-year freeze and return to 55% rate in 2011, but we are not out of the woods yet. With potentially differing positions in the House and Senate combined with a short time window, a one-year freeze could still result as a fall-back option.

Despite the complex legislative and political dynamics, Policy and Taxation Group is working effectively and pragmatically behind the scenes every step of the way, from the successful identification of sponsors and drafting of the Berkley/Brady proposal to the persuasion of House leaders to pass permanence without harmful offsets. Our work continues to make a critically important difference and increase the prospects for real, sustainable relief.

We’ll keep you posted as the Senate prepares for action. Thanks for your continuing support.

Best,

Jeff

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