Senators Close To Estate Tax Compromise

by Mike Godfrey, Tax-News.com, Washington

23 June 2005

Republicans and Democrats in the United States Senate are said to be close to achieving a compromise that could result in legislation rolling back the estate tax for all but the wealthiest Americans.

Congressional aides have revealed that proposals to substantially lower the rate at which estate tax is levied while increasing the exemption threshold have bipartisan backing, reducing the prospect of a filibuster by the Democrats who are opposed to an outright repeal of the tax.

Currently, the estate tax threshold is $1.5 million, which is set to rise to $3.5 million (and $7 million for couples) in 2009 under tax cuts passed in 2001. Meanwhile, rates are set to decline to 45% in 2009 before being repealed for one year. However, under the 2001 legislation, the tax will then be resurrected at the pre 2001 rate of 55%.

While there seems to be a high degree of optimism that a compromise will be reached in the next few weeks, views over future rates and exemption levels at the moment remain quite disparate. Senator John Kyl (R - Arizona) is pressing for a $10 million per person exemption and a 15% tax rate. Meanwhile, Senator Max Baucus (D - Montana), the top Democrat on the Finance Committee, favors a higher rate and a threshold of when the tax becomes payable of between $3 million and $5 million.

Any such compromise measure is expected to be approved by the House of Representatives, which has already voted to repeal the tax on a permanent basis. However, whether it will receive the blessing of President Bush, who has publicly declared his wish for a permanent repeal of the estate tax, is another matter.

IRS figures indicate that estate tax already touches only a very small proportion of the US population. In 2003, the latest available figures, a total of 66,000 estate tax returns were sent to the IRS. Of those, 20,600 were for estates of $1 million or more, and a mere 3,486 were for estates worth $5 million or more.

According to a recently published study by the wealth research firm Prince Associates, sponsored by the wealth management firm Resource Network Ltd., three-quarters of the 483 millionaires polled wanted changes to the estate tax system, with one-quarter of the survey favoring an outright repeal of the tax.

However, the survey picked up on a divergence of views between those who inherited their wealth, and those who are self-made millionaires. While almost one-third of the former group felt overhauling or repealing the estate tax would make it harder for ordinary Americans to become wealthy, only 8% of the self-mades held the same view.

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