Sensible Estate Tax Act of 2009

Under the law passed by President Bush, the Economic Growth and Tax Reconciliation Act of 2001 (“EGTRA”), there is no estate tax in 2010, and estates pay only capital gains tax; then the estate tax returns with a $1 million exemption in 2011. President Obama wants to prevent this one year gap by making the 2009 estate tax law permanent. Under the President’s proposal, each person could leave up to $3.5 million to his or her heirs free of estate taxes. There are several other estate tax proposals on the table, including a proposal by Rep. Jim McDermott of Washington, whose Sensible Estate Tax Act, HR 2023, will provide $62 billion more in revenue over 10 years compared to President Obama’s proposal.

The Sensible Estate Tax Act of 2009 repeals provisions of EGTRA relating to the estate and gift tax, and amends the Internal Revenue Code to: (1) allow an estate tax exclusion of $2 million adjusted for inflation in calendar years after 2010. The legislation completely excludes the first $4 million a couple has in the value of an estate.; (2) revise the estate tax rates for larger estates (45% up to $5 million, 50% from $5-10 million, and 55% for estates above $10 million; (3) restore the estate tax credit for state estate, inheritance, legacy, or succession taxes; (4) restore the unified credit against the gift tax; and (5) allow a surviving spouse an increase in the unified estate tax credit by the amount of any unused credit of a deceased spouse, thereby making the estate tax exemption “portable”.

The latest major legislative action on the proposed new law occurred on April 22, 2009 when the law was referred to the House Committee on Ways and Means.

This bill was proposed in a previous session of Congress. Sessions of Congress last two years, and at the end of each session all proposed bills and resolutions that haven’t passed are cleared from the books. Members often reintroduce bills that did not come up for debate under a new number in the next session.

Congress is expected to vote later this year on legislation to make permanent changes in the estate tax.