Tax News

CCH (cch.taxgroup.com) reports:

  Congress could debate the future of the federal estate tax this fall, according to speakers at a briefing on the tax in Washington, D.C., on June 4. Douglas Holtz-Eakin, former director of the Congressional Budget Office (CBO) and advisor to presidential candidate John McCain, defended eliminating the estate tax but acknowledged that lawmakers will likely extend or make permanent the current rate and exemption amount.

2009 Rate and Exemption

  Under current law, the federal estate tax is scheduled to expire after 2009 but return after 2010. The federal estate tax would reach 55 percent on estates valued at more than $1 million after 2010.

  The Obama administration has proposed making permanent the 2009 maximum estate tax rate of 45 percent with a $3.5 million exemption ($7 million for married couples) (TAXDAY, 2009/04/30, C.1). The Taxpayer Certainty and Relief Bill of 2009 (Sen 722 ), introduced by Senate Finance Committee (SFC) Chairman Max Baucus, D-Mont., would make these amounts permanent after 2009.

  However, not all Democrats agree with making the 2009 amounts permanent. Some Democrats have expressed support for extending the 2009 exemption amounts two or thee years, rather than making them permanent. Many Republicans support repealing the estate tax, but the GOP lacks the votes in the House or Senate to eliminate the tax entirely.

  The SFC has not yet scheduled a hearing on Baucus'bill. Several lawmakers and congressional staff members have indicated that the SFC may take up the bill in the autumn.

  "Congress' choice matters," Holtz-Eakin said. "If the estate tax goes back to 55 percent, it will have a strong negative impact on the probability that small businesses will expand their payrolls." Allowing the estate tax to revert in 2011 to 55 percent with the exclusion reduced to $1 million would "eventually reduce gross domestic product by $183 billion," Stephen J. Entin, president, Institute for Research on the Economics of Taxation, added.

Business Planning

  Uncertainty over the future reach of the estate tax impacts business planning, Eugene Sukup, chair, Sukup Manufacturing Co., Sheffield, Iowa, said. Sukup explained that he intends for his children to inherit the family business, but worries that his children could be forced to sell the business to pay federal estate tax after his death.

  "A low estate tax rate provides an incentive to grow the family business," Dick Patten, president of the American Family Business Institute, which sponsored the briefing, said. "A high estate tax provides the opposite."

  By George L. Yaksick, Jr., CCH News Staff