As Congress has returned from the August Recess, the House and Senate have begun to turn their attention to estate tax reform. And the stakes in this fall’s battle couldn’t be higher for families.

Action Through August

As a consequence of the 2001 tax reform, the estate tax currently stands at a 45% rate above a $3.5 million exemption, while it is scheduled to disappear for one year in 2010 and return permanently in 2011 at a higher 55% rate and lower $1 million exemption. In 2008, President Obama campaigned on a platform of permanently freezing the estate tax at the current rate and exemption, a position he included in his budget and continues to maintain. Throughout the beginning of the 111th Congress, House and Senate leaders have expressed their intention to follow the President’s lead and make permanent a freeze at current levels and ensured the proposal was a key element of the budget resolution adopted in April.

Early Victory

Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ), supported by Policy and Taxation Group and our coalition allies, achieved an important victory on April 2 when the Senate adopted an amendment to the budget resolution by a 51-48 vote that would make permanent a 35% rate and a $5 million exemption indexed for inflation, reunify estate, gift and generation-skipping taxes and provide spousal portability, but would not include any deduction or credit for state estate taxes. Although conference negotiators ultimately dropped the Lincoln/Kyl proposal from the final budget resolution, the vote put the Senate on record in support of estate tax relief better than a freeze of current law.


In late April, House Speaker Nancy Pelosi (D-CA) and Majority Leader Steny Hoyer (D-MD) released a joint statement declaring that the House will not consider any estate tax reform legislation unless it includes statutory PAYGO, follows the enactment of statutory PAYGO or is fully offset. Statutory PAYGO, which passed the House in July, would build on the House’s “pay-as-you-go” rules to require in law that any increase in the deficit be fully offset or result in an across-the-board spending cut at the end of the year. The bill would create specific exceptions for four policies, including a permanent extension of the estate tax at 2009 levels, meaning such an extension would not have to be “paid for” under the statute. Since the Senate is unlikely to consider statutory PAYGO, House leaders continue to maintain that in its absence estate tax reform must be “paid for”.

Valuation Discounts & Offset Threats

As health care reform became a focal point in May, the Administration proposed partially offsetting the cost of reform with increases in estate and gift taxes that would add to the burden on individuals and family businesses. Included in its “Greenbook”, the Treasury Department recommended eliminating valuation discounts for family-controlled entities, restricting the use of grantor-retained annuity trusts (GRATs) and increasing reporting requirements for smaller family businesses. Behind the scenes PATG has strategically and successfully engaged our allies to ensure these estate tax increases are not included as offsets for the House and Senate health care reform bills.

A similar proposal to eliminate valuation discounts for family businesses has also resurfaced as part of H.R. 436. In addition to making the current rate (45%) and exemption ($3.5 million) permanent and limiting use of minority and other discounts for “non-business” assets, the bill would also apply a 5% surtax on estates of more than $10 million. We created our recent fact sheet, “Congress Should Not Tax Family Businesses More Than They Are Worth,” to help our friends on the Hill understand the critical importance of preventing the arbitrary inflation of estate values. PATG will remain vigilant, educating legislators on the impact of these proposed revenue raisers on family businesses, and we will keep you posted as your advocacy assistance is needed.

Fall Outlook

While health care reform continues to capture the most attention on Capitol Hill, in the background key staff for the House and Senate tax-writing committees are beginning to prepare for the consideration of estate tax reform legislation later this fall.

On the House side, leaders continue to insist that without the Senate passing statutory PAYGO estate tax reform must be fully offset. Pointing to the large price tag of retaining the estate tax at current levels (approximately $256 billion over 10 years), some leaders of the Ways & Means Committee have indicated their intent to move a one-year freeze and consider the issue again next year as part of comprehensive tax reform. While many in the Majority continue to express a preference for a permanent solution and recognize the political risk of addressing the estate tax again in an election year, a one-year freeze is gaining traction. This approach would force families to face an even tougher fight in 2010 to prevent the automatic implementation of a 55% rate and a $1 million exemption and could result in the estate tax becoming an extender every year. We are working with our key Ways & Means allies, Representatives Shelley Berkley (D-NV) and Kevin Brady (R-TX), to prepare for committee consideration and delivering the message to House and Senate staffers that permanency and certainty are essential components in any estate tax reform legislation.

On the Senate side, proponents of estate tax relief have a stronger starting position as a result of April’s vote in favor of the Lincoln/Kyl compromise. Finance Committee Chairman Max Baucus (D-MT) is a supporter of ultimate repeal and has introduced legislation to permanently freeze the tax at current levels. With the committee currently focused on health care reform, a timeline for action has not yet emerged. In the meantime, we are consulting regularly with staff for Senators Lincoln and Kyl as they strategize on the best plan to provide relief for family businesses in the tough political and budgetary environment. In addition to engaging our friends on the necessity that any offsets for estate tax reform not increase other estate tax burdens on family businesses, we continue to meet frequently with the moderate Democrats and Republicans whose votes we will need.

Within the Family Business Estate Tax Coalition, PATG has worked with our partners to take a formal stand against the one-year freeze and increases in the estate tax burden. On September 24, the Coalition sent a strong letter to Congress on the necessity that reform provides permanency, certainty and relief.


With so much at stake, our efforts to educate lawmakers and work with our allies have never been more important. The legislation that Congress adopts this fall will shape the fight for estate tax reform for many years. With your support, we are providing the leadership and constant engagement needed to ensure that families secure the best possible outcome in this challenging environment.