The President's Tax Cuts Progress Through Congress

Mike Godfrey, Tax-News.com, New York

02 April 2001

On Thursday last week the US House Ways and Means Committee voted through a bill on the abolition of estate duty by 24 votes to 14. HR 8, the "Death Tax Elimination Act of 2001," would provide $192.8 billion in tax relief over 10 years.

The bill would reduce the estate, gift, and generation-skipping transfer tax rates beginning in 2002, and fully repeals the taxes beginning in 2011, as follows:

In 2002, the bill would eliminate the top tax rate of 55 percent, eliminate the 5 percent add-on that takes away the benefit of graduated rates for estates over $10 million, and convert the unified credit into a true exemption so that the first dollar of tax is paid at the lowest tax rate.

In 2003, the bill would eliminate tax rates above 50 percent.

In 2004-2006, the bill would reduce tax rates across-the-board by one percentage point per year.

In 2007-2010, the bill would reduce tax rates across-the-board by two percentage points per year.

During the period from 2002-2010 in which the Federal estate and gift tax rates are being reduced, the bill would reduce the State death tax credit proportionately. The bill would also provide that the lowest Federal estate and gift tax rate cannot be reduced below the lowest Federal income tax rate and the highest Federal estate and gift tax rate cannot be reduced below the highest Federal income tax rate.

In 2011, the bill would fully repeal the gift, estate, and generation-skipping transfer taxes. The bill would also provide that, starting in 2011, carryover basis apply to property transferred at death, except that additional basis applies to $1.3 million of property, plus $3 million of spousal property. The bill would also provide that the $1.3 million and $3 million amounts are adjusted annually for inflation after 2011, and that the basis of each interest in property cannot be increased above the fair market value of the property at death.

The bill would simplify the rules for the generation-skipping transfer tax, expand the present-law estate tax conservation easement exclusion, and expand the present-law election to pay estate tax in installment payments.
The bill would prevent income tax avoidance schemes and promote compliance with the new basis rules.

The bill now moves to the full House, where it will presumably be able to command a majority. The fate of a comparable bill in the Senate is of course much less clear. It will be easier to assess its chances after this week's Senate vote on the President's budget motion, which passed the House easily a week ago.

Senate Democrats are hoping a few last-minute Republican defections will derail the budget resolution, which is non-binding and doesn't require the President's signature, but which acts as a guide to the behavious of the main spending committees during the budget year beginning in October. 'We think there is a possibility we could defeat the budget resolution and go back to the negotiating table,' Senate Democratic leader Tom Daschle of South Dakota said on Sunday on CBS's Face the Nation.

The vote for final passage is expected to follow party lines, with one senator on each side almost certain to defect. Democrats are hopeful that additional moderate Republicans will vote their way because of concerns over the 10-year, $1.6 trillion tax-cutting agenda which underlies the budget.

But on ABC's This Week, second-ranking Republican Senator exuded confidence: 'We're going to be successful. By the end of this week we're going to pass the budget,' said Don Nickles (R - Oklahoma).

At least one Democrat, Sen. Zell Miller of Georgia, is likely to vote for the budget. Miller has been a consistent supporter of Bush's proposed tax cut. Democratic Sen. Ben Nelson of Nebraska is also a possible vote for the GOP, but Tom Daschle said he had Nelson's commitment to vote against the budget.

In the tied senate, Democrats need at least 51 votes to overcome the Republicans and the vice president's tie-breaking vote. Republican Sen. Lincoln Chafee of Rhode Island seems likely to vote with the Democrats he has said that Bush's tax cut is far too large.

The Republicans have rejected a Democratic request to postpone the budget debate until late April, when Congress returns from a two-week Easter recess. Democrats wanted the delay because they believe the April 9 release of Bush's full budget, including details of spending cuts he will propose, would have given them ammunition to use on the Senate floor. 'We don't have the president's budget, we won't get it until after the debate is over, which is really pretty amazing,' said Daschle, 'Only in Washington would you vote on something you haven't seen.'

 

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