By Steven Cooper, David Hansen and Paula Cruickshank, CCH Washington Staff Writers
The House of Representatives voted 269 to 156 to approve the Permanent Estate Tax Relief Act of 2006 on June 22, 2006, a compromise measure offered by Ways and Means Chairman William M. Thomas (R-Calif.). The bipartisan vote sends the bill to the Senate, where its prospects for passage are good. The Senate previously rejected a full repeal of the tax, leading to the efforts for the compromise reform measure.
The newly approved bill would increase the exemption amount shielded from tax to $5 million per person, effective January 1, 2010. Any unused portion of the exemption would be carried over to the surviving spouse. The measure also was amended on the House floor to index the exemption to inflation.
Moreover, the reform would set the tax rate on estates worth up to $25 million (minus the exemption) at 15 percent, the current rate on capital gains. Those estates worth more than $25 million would be taxed at 30 percent.
The bill also creates a new 60 percent deduction for qualified timber capital gains, effective from the date of enactment through 2008. Thomas added the timber provision to gain support from Washington State Democrats, after a full estate tax repeal bill failed to win approval in the Senate. Meanwhile, Washington Sens. Maria Cantwell (D-Wash.) and Patty Murray (D-Wash.) have yet to express support for the House bill.
The Senate is expected to consider the House bill during the week of June 26. Most GOP lawmakers prefer total, permanent repeal of estate taxes, but after the Senate defeat of that prospect, the legislators are looking for common ground with a good number of Democrats sympathetic to some sort of estate tax reform.
During the House debate, many Democrats sought to portray the estate tax bill as a sop for the rich, who want to pass on their wealth to heirs. Democrats said the measure would add $800 billion to the federal budget deficit from 2010 to 2020 and only benefit 7,500 families.
Republican lawmakers countered that family farms and small businesses would be helped by the legislation. House Small Business Chairman Donald Manzullo (R-Ill.) voted for the bill and touted its benefits to small business owners. The estate tax is a major factor in the demise of almost all family businesses that fail within three years of the owner's death, explained Manzullo, and more than 80 percent of small employers spend resources trying to avoid the tax. Manzullo recalled a story from his days as an attorney, where he witnessed an estate sale triggered by the tax. [T]he mom and her kids had to sell off half the family farm because they couldn't afford to pay the death tax after dad died," he wrote in a June 22 press statement. "And their American Dream was crushed....It's time to do away with this immoral tax that has destroyed so many families."
Given the new dynamics at play, President George W. Bush's administration has shifted its position on estate tax legislation, calling the House compromise bill "a step in the right direction" and one it can support now with the ultimate goal of full and permanent repeal in the future. President Bush has repeatedly called for permanent repeal and White House officials previously have shown no support for a compromise that would exclude most, but not all taxpayers from paying estate taxes. While maintaining that the estate tax ultimately should be repealed, the administration meanwhile supports ending it "for as many people as possible now. While short of full repeal, [the House bill] provides significant relief from the death tax," according to an administration policy statement issued on June 22.
- Related items:
- Full Estate Tax Repeal Dies in Senate; Compromise Reform Under Consideration
- IRS Concedes Defeat on Long Distance Telephone Tax; Refunds To Be Granted
- New Retirement Savings Opportunities in Recent Tax Relief Law
- Congress Extends Tax Relief Provisions with Offsets, Seeks To Reinstate Expired Credits
- New Tax Year Means Many Tax Changes to Consider
Added to the news on June 30, 2006.
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