House Estate Tax Compromise Faces Uncertain Senate Future

by Leroy Baker, Tax-News.com, New York

26 June 2006

The United States House of Representatives last week approved a measure that would eliminate estate tax for all but a relatively small number of the wealthiest families in America, although the proposals face an uncertain future in the Senate.

The Permanent Estate Tax Relief Act of 2006, drafted by Congressman Bill Thomas (R - Calif), Chairman of the House Ways and Means Committee, was passed by a bipartisan vote of 269-156 on Thursday.

According to Thomas, if enacted, the bill would give Americans "permanency and certainty for their estate tax planning," but admitted that the real test will come in a Senate vote.

“I, along with the majority of House members, have voted time after time in a bipartisan manner to fully repeal the estate tax,” stated Thomas.

However, he added that: “So far, those efforts have died in the Senate."

Earlier this month, Senate Majority Leader Bill Frist (R - Tenn) asked Thomas to draft a compromise bill capable of grabbing 60 Senate votes after a proposal to debate a permanent repeal was thrown out.

Thomas claims that his legislation would permanently eliminate the estate tax for 99.7 percent of all Americans by increasing the exemption amount to $5 million per person, taxing estates worth between $5 million and $25 million at a rate equal to the capital gains tax rate (currently 15%), and taxing estates worth over $25 million at a rate equal to double the capital gains rate.

Thomas says that the bill would also unify the estate, gift, and generation-skipping transfer tax, giving individuals greater flexibility to make estate planning decisions during their lifetime.

The Joint Committee on Taxation has estimated the bill to be worth $283 billion over 10 years.

Under current law, the estate tax gradually declines until it is fully eliminated in 2010. However, in 2011, the tax returns in full force, allowing an exemption from the estate tax of $1 million per person, and taxing all other estates under a progressive tax rate structure, topping 55%.

By the end of last week, no decision had been taken as to when the proposals would be put before the Senate, although Frist is keen to schedule a vote ahead of the Independence Day recess, which begins July 3.

However, the bill's prospects there will depend on whether Republican leaders can win over some Democrats in order to attain the 60 votes needed to prevent a Democratic filibuster.

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