Major Legislative Victory for Families! Estate Tax Relief on the Way

Despite the long odds and the challenging political environment we are pleased to report that we have secured the lowest estate tax rate applied in 80 years. On December 16 the House defeated the Pomeroy amendment and sent to the President bipartisan tax reform legislation that provides two years of significant estate tax relief:

  • A 35% rate (20% lower than existing law)
  • A $5 million exemption indexed for inflation ($1.5 million higher than existing law for estates and GST, and $4 million higher for gifts)
  • Reunification
  • An executor election for 2010 decedents
  • Improved end of year planning certainty and no GST tax for all of 2010
  • Spousal portability
  • Preservation of valuation discounts, GRATs and state estate tax deductibility

The Pomeroy amendment to increase the rate to 45% and decrease the exemption to $3.5 million was defeated by a vote of 194-233-1. 60 Democrats and all 173 Republicans present opposed the amendment. The House then passed the bill by a vote of 277-148. Both chambers of the Democratically-controlled Congress are now on record actually preferring a lower 35% rate over higher levels, strengthening our hand when we need to fight to preserve and improve upon our gains in the next Congress.

We couldn’t have done it without your constant encouragement and generous support for Policy and Taxation Group. Thank you!

· Finally please place at the very top of the page – above the ‘Major Victory’ article the below article with the heading “New Congress Alters Budgetary Politics on Estate Tax Reform”. So when you’re finished there should be only two articles on the main page then immediately following should be the video links.

During the week of January 3 newly elected members of the House and Senate were sworn into office, and House leaders adopted new rules that will alter some of the budgetary politics around tax and spending issues. In the previous Congress, Democrats adopted “pay-as-you-go” budget rules, allowing measures to reach the floor in most circumstances only if spending increases and tax decreases were fully offset by other spending decreases or tax increases. In this Congress, Republicans have implemented a “cut-as-you-go” approach, which will require spending increases to be offset by only spending decreases (and not tax increases) in other areas. The rules would also largely exempt tax relief in general, and estate tax relief in particular, from any offset requirements.

However, the statutory “pay-go” law, which was enacted as part of a deal to increase the debt limit in early 2010, is still in effect and will also impact the political calculus. In the event Congress does not offset spending increases and tax decreases, the law requires across the board cuts to nonexempt discretionary spending at the end of each year. The law assumes that after 2012 the estate tax rate and exemption will return to 55% and $1 million, respectively. This means that in the absence of an emergency designation, any estate tax relief beyond pre-2001 levels (and even simply continuing the current rate and exemption) would still require offsets.

In this new environment, Policy and Taxation Group has already begun to meet with the more than 90 freshman House members from both political parties to lay the groundwork to protect our gains and win further relief over the next few years. In the short term, a technical corrections bill to fix any unintended consequences of the bipartisan tax reform law will likely be considered in the coming months.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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