Public Policy

Estate Tax Reform

Senate Finance Committee Conducts Estate Tax Hearing
The Senate Finance Committee held a hearing April 3 entitled, "Outside the Box on Estate Tax Reforms: Reviewing Ideas to Simplify Planning." Diana Aviv, president and CEO of Independent Sector, testified at the hearing and addressed the estate tax both as an important incentive for giving to charity and as a critical source of revenue for the federal government. She also discussed areas of abuse and offered suggestions for improving compliance.

Estate Tax and the 2009 Federal Budget
The estate tax is a key issue being considered as part of the FY 2009 budget resolution. While not binding, the budget resolution sets policy priorities for the year.

The House-passed budget resolution included language calling for elimination of estate taxes on all but a minute fraction of estates by reforming and substantially increasing exemption level for couples. In the Senate, Finance Committee Chairman Max Baucus (D-MT) offered a middle-class tax relief amendment that, among other things, calls on Congress to permanently extend the 2009 estate tax exemption of $3.5 million per individual and $7 million per couple. Other reform proposals were rejected during the Senate debate.  Independent Sector submitted a statement to both of the House and Senate budget committees addressing several priorities, including the estate tax.

Estate Tax Debated Before Senate Finance Committee
Stating “repeal isn’t going to happen,” Senate Finance Committee Chairman Max Baucus (D-MT) conducted a November 14 hearing on the need for certainty in estate planning and sought recommendations for reform. Warren Buffett, Chairman of Berkshire Hathaway Inc., spoke in favor of the estate tax, stating “A meaningful estate tax is needed to prevent our democracy from becoming a dynastic plutocracy.” When pressed by Senators, Buffett proposed a reform package that sets an exemption level of $4 million ($8 million for a couple), indexed for inflation, with a steeper progressive tax rate that taxes the wealthiest estates at a rate above the 45% top tax rate for 2009.

Conrad Teitell, a Principal with Cummings and Lockwood in Stamford, CT, testified to the practical concerns of planning under the current law. "The tax law that Congress gave birth to in 2001 makes complicated plans even more complicated," he said, referring to the estate tax provisions included in the Economic Growth and Tax Relief Reconciliation Act of 2001. "The uncertainty of the tax means that we have to plan for the worst-case scenario, costing us even more money,” Teitell said.


Legislative History

Estate Tax Bill Defeated in the 109th Congress
A measure (H.R. 5970) that would have amounted to a near-repeal of the estate tax was defeated in the Senate on August 3, 2006 after proponents failed to gain the 60 votes needed to end debate on the bill. IS opposed the estate tax legislation because it would have removed much of the incentive for charitable giving through bequests and would have significantly reduced revenue for the federal treasury. Senate Majority Leader William Frist (R-TN) did not attempt to bring the estate tax measure back in September.

The measure would have exempted estates valued at $5 million ($10 million for married couples) from taxation; estates valued from $5 to $25 million would be taxed at 15 percent; and estates valued at greater than $25 million would be taxed at a 30 percent rate. The Joint Committee on Taxation estimates (PDF) that the estate tax provisions in H.R. 5970 would have cost $268 billion between 2007 and 2016. The Center on Budget and Policy Priorities estimates that the proposal would have cost about 80 percent of full repeal.

The bill, which cleared the House on July 29, 2006, also included an increase in the minimum wage and several popular tax provisions that expired at the end of last year. The House also passed an estate tax reform bill (H.R. 5638) on June 22, 2006 by a vote of 269 to 156. The bill would have increased exemption amounts to $10 million per couple and considerably lowered the estate tax rates. Earlier in the summer the Senate rejected efforts to call a vote on full repeal of the estate tax. IS sent letters (PDF) to key Senators urging them to oppose permanent repeal or irresponsible reform, and instead to support estate tax reform that preserves incentives for charitable giving and retains significant revenue for the federal treasury.

Background
Congress enacted legislation in 2001 that gradually lowers the rates for estate and gift taxes through the year 2010, when the estate tax is repealed for one year. The rates will revert back to present law in the year 2011.

It is estimated that repealing the estate tax would reduce federal revenue by $1 trillion over the next 20 years. It would also remove a strong incentive for the wealthiest Americans to make charitable bequests through their estates. The Congressional Budget Office issued a report in July 2004 on the impact that estate tax repeal would have on charitable bequests. The CBO concludes that eliminating the estate tax would result in an estimated 22 percent decline in charitable bequests.

The CBO released a second report on the impact of estate tax repeal, which concludes that increasing the amount exempted from the estate tax from $675,000 to either $2 million or $3.5 million would reduce total charitable giving (not just bequests at death) by less than 3 percent. Repealing the estate tax completely would reduce total giving to charity (again, not just bequests) by 6 to 12 percent. The report explains that since charitable bequests lower the taxable amount of estates, the estate tax gives provides an incentive to donate to charity both at death and during one's lifetime.

 

Last updated: April 3, 2008
 
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