House Passes Estate Tax Extension Coupled with Statutory “Pay as You Go” Budget Rules

Passage in House aimed at kick starting House-Senate negotiations for a year end compromise on the contentious estate tax issue

 

Issue: Estate Tax-Certainty in Estate Tax Rules.

 

Date: December 3, 2009  

 

Action Taken: By a vote of  225 to 200, the U.S. House of Representatives has passed H.R. 4154, a bill sponsored by Rep. Earl Pomeroy (D-ND) that would extend 2009 estate tax rules into 2010 and beyond. The procedural rule under which the Pomeroy bill was debated requires the Pomeroy estate tax bill to be coupled with a statutory “Pay as You Go” budget rule. The ultimate inclusion of the Pay-Go” rule will surely complicate negotiations with the Senate. But, passage of H. R. 4154 in the House is considered the first of efforts to resolve the estate tax issue before the tax sunsets in 2010.  

 

Background: As most NAIFA members know, unless Congress acts to stop it, the federal estate tax currently in force calls for the law to sunset in 2010, only to spring back to 2001 levels in 2011. Most members of Congress on both sides of the political aisle do not support that outcome. Finding a solution to this dilemma acceptable to both sides however has been elusive.

 

H.R. 4154 contains the following key estate tax provisions:

  • Sets a $3,500,000 federal estate tax exemption in 2010 and beyond;
  • Sets the maximum gift tax rate and estate tax rate at 45%;
  • Maintains current step up in basis rules.

 

Missing from the bill is a provision reunifying gift tax and estate tax regimes and indexing of the exempt amount—provisions which are widely supported in Congress. Rumors swirling in Congress attribute the oversight to sensitivity in the House over the bill’s impact on future budget deficits. Speaking to that issue, coupling the estate tax bill with a statutory “Pay as You Go” provision will require that future legislation that loses revenue must be matched up with cost cutting or revenue raising offsets.

 

Next Steps: No one expects the Senate to pass a similar estate tax fix combined with a Pay-Go statute, so the House exercise is not likely to succeed. However, most Senators also favor a fix to current estate tax law—some at higher limits some at lower. The House action today may open the way for an ultimate compromise on the estate tax that will see something similar to current exempt amount limits and top tax rates in force for at least 2010.