Last Week Senate Voted to Exempt Estates Of Up To $10 Million From Any Estate Taxes

President Bush’s tax cut law passed in 2001, called the Economic Growth and Tax Relief Reconciliation Act of 2001, Pub.L. 107-16, 115 Stat. 38, June 7, 2001 (hereafter “EGTRRA”) gradually phased out the estate tax by raising the exemption level and reducing the top rate; in 2009, only estates valued at more than $3.5 million per person and $7 million per couple owe any tax, and the top tax rate is 45 %.  Under EGTRRA, the tax will disappear completely in 2010 but reappear in 2011 under its 2001 parameters, with a $1 million exemption and a 55 % rate on the largest estates.

President Obama has proposed extending the estate tax exemption permanently at its 2009 level.  That means that estate taxes will be imposed only on couples with property worth more than $7 million, or individuals with property worth more than $3.5 million. As a result, 99.8 % of estates will never — ever — pay a penny of estate tax.

On April 2, 2009, 10 Democrats in the Senate joined all 41 Republicans in voting for a $250 billion proposal to further cut estate taxes on the remaining 0.2 % of those estates which would still be subject to the estate tax under President Obama’s proposed extention of the 2009 estate tax exemption established by EGTRRA. The new law was submitted by Senator Blanche Lincoln, Democrat of Arkansas, and Senator Jon Kyl, Republican of Arizona.

The Lincoln/Kyl estate tax amendment increased the estate tax exemption to $5 million for individuals and $10 million for couples and lowered the tax rate from 45% to 35%. The law also “reunified” the estate tax and gift tax exemptions, which would further reduce the tax burden. Surprisingly, at the same time the Senate also passed an amendment from Sen. Richard Durbin, Democrat of Illinois, that prohibited any estate tax cuts called for in the Lincoln/Kyl amendment unless an equally large tax cut is passed for Americans making under $100,000 per year.

The Lincoln/Kyl estate tax amendment now moves to the House of Representatives for further consideration, where it is unlikely to survive in its present form.  Before the Senate approved the Lincoln/Kyl amendment, House Majority Leader Harry Reid, Democrat of Nevada, said, “It is so stunning, so outrageous that some would choose this hour of national crisis to push for an amendment to slash the estate tax for the super wealthy.”

Sources: April 3rd post on the Center on Budget and Policy Priorities website; April 3rd post on the OMB Watch website; and, the April 2nd Editorial in the Washington Post website.