Friday, September 3, 2010

Will Congress Act on Estate Tax Reform in 2010?

According to a report in The Hill, Sen. Chuck Grassley (R. Iowa) predicts that Congress will act before the end of 2010 to prevent a return of the federal estate tax in 2011.  Unless Congress acts this year, an individual decedent's federal estate tax exemption will be only $1 million as of January 1, 2011.

Grassley, who is the ranking Republican on the Senate Finance Committee, believes that Congress will enact compromise legislation that will provide for a $3.5 million per person federal estate tax exemption.  While Republicans have been strenuously advocating to make estate tax repeal permanent, Grassley's prediction appears to signal that the Republicans are finally ready to compromise, rather than see the estate tax exemption revert back to the same $1 million amount that was in effect back in 2000. 

Of course if Republicans make significant gains in the House and Senate in November's election as many pundits are predicting, they may well take a harder line on this issue.  But Grassley's comments reflect the reality that, regardless of the results in November, the Democrats will retain control of Congress through the end of this year.  Even if the Republicans gain control of both the House and the Senate, without estate tax reform this year -- which will require a compromise with the Democratic leadership -- the federal estate tax exemption will automatically revert to $1 million in January, and would remain so for such period of time until a new bill were to pass both the House and the Senate.  And, even if a Republican majority were to succeed in passing a bill providing for significantly larger exemption amount -- say $5 million per person, or even complete repeal -- such legislation would almost certainly face a Presidential veto.

Given that Republicans were unable to enact permanent estate tax repeal throughout the Bush years -- during a time when Republicans controlled both the House and the Senate as well as the White House -- it seems plausible that the Republicans would agree to a $3.5 million exemption that would be effective as of January 1, rather than risk the wrath of their supporters were the exemption to revert to the $1 million figure, which would be the case as things currently stand. 

There seems very little risk to Republicans to agree to such a compromise, which would almost certainly take place after the November elections.  While the Republican "base" might howl at the thought of any accommodation with the Democrats, Republicans in Congress would certainly continue to press for complete estate tax repeal in the months and years ahead.  Depending upon future election results -- especially in the 2012 presidential election -- Republicans might finally realize their long-held dream of permanently killing the federal estate tax.  In the meantime, if the $3.5 million exemption is instituted as of January 1, they will have at least ensured that all but the wealthiest American families will be exempt from paying any federal estate tax.

Click here to read the article.

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