The Fight Over Estate Tax Reform Once Again is Heating Up in Washington

President Obama included in his FY2010 Budget proposal a permanent freeze of the federal estate tax at 2009 levels – at a 45% rate and a $3.5 million exemption. Last week the House and Senate Budget Committees also included a permanent freeze in their versions of the budget resolution by allowing a decrease in revenues of $72 billion over 5 years and $256 billion over 10 years. A freeze of 2009 levels remains the most likely outcome this year.

At the same time, proponents of estate tax relief have begun to mobilize in the Senate and House. On the Senate side, Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) have come to agreement on a compromise proposal they hope to offer as an amendment to the Senate budget resolution this week. Their compromise proposal would make permanent a 35% rate and a $5 million exemption indexed for inflation, unify the estate, gift and generation-skipping taxes, and provide portability, but it would not include any deduction or credit for state estate taxes. Their proposal would cost approximately $30 billion more than the cost of a freeze over 5 years, and $85 billion more over 10 years.

The amendment would likely contain a deficit neutral reserve fund, which would suggest the reform proposal be paid for without specifying particular offsets in the budget. Our allies on the Hill believe the inclusion of a deficit neutral reserve fund is critical to our chance to succeed, as many Democrats and Republicans are reluctant to support any amendments that “cost” anything in this troubled budgetary environment.

Lincoln and Kyl strongly believe this is the best possible outcome for estate tax reform this year, and they have asked members of the Family Business Estate Tax Coalition for their support. Floor consideration of the Senate budget resolution is expected to begin today (3/30) and likely to end by Saturday (4/4), so a vote on an estate tax amendment could occur at any time this week.

Last week, we had 12 meetings with key Senate offices to gauge support for the proposal, and we will continue to engage swayable Senate Democrats this week. We are regularly providing legislative intelligence to our Senate allies. If Lincoln and Kyl are successful in getting their amendment included in the budget resolution, it will be much easier to have the compromise enacted into law later this year.

Lincoln and Kyl plan to introduce their proposal as a stand-alone bill as well in the next few weeks. Representative Shelley Berkley (D-NV), an important ally on the Ways & Means Committee, has agreed to sponsor a companion measure of the Lincoln/Kyl proposal on the House side. Rep. Berkley has asked for our support to help identify a Republican lead cosponsor prior to introduction.

On March 26, Senate Finance Committee Chairman Max Baucus (D-MT) introduced and held a hearing on legislation focused on middle class tax relief and including a provision to make the estate tax permanent at current levels, index the exemption for inflation, unify estate, gift and generation-skipping taxes, provide portability and enable special use valuations. The estate tax provision has not yet been scored.

Needless to say, this will be a very important year for estate tax reform. Pat and I will keep you posted as the issue moves forward in the weeks and months ahead. Please do not hesitate to reach out to me if you have any specific questions.

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