US House Takes Up Estate Tax Baton

by Mike Godfrey, Tax-News.com, Washington

21 June 2006

Rep. Bill Thomas (R - Calif) Chairman of the tax-writing Ways and Means Committee in the US House of Representatives, has introduced legislation that would reduce the number of Americans subject to the estate tax by raising the per-person threshold for the tax.

According to Thomas, the Permanent Estate Tax Relief Act of 2006 would give individuals greater flexibility to make estate planning decisions during life by reunifying the estate, gift and generation-skipping transfer taxes.

The proposals would increase the exemption amount to $5 million per person effective January 1, 2010 while reducing the rate of tax on estates up to $25 million to the capital gains tax rate (currently 15 percent, set to increase to 20 percent in 2011 unless extended). Estates of $25 million or more would pay tax of twice the prevailing capital gains tax rate.

Thomas's bill would also simplify estate tax planning by allowing married couples to take full advantage of the $5 million exemption by carrying over any unused exemption to the surviving spouse.

In addition, the legislation includes a new 60% deduction for qualified timber capital gains.

While 2001 tax legislation will cut the estate tax rate and raise the threshold over the next four years, it will be reinstated at the pre-2001 rate of 55% in 2011.

The House has taken up the estate tax baton after the Senate rejected a motion to debate a full repeal of the tax and Senate Majority leader Bill Frist, an advocate of full estate tax repeal, signaled his willingness earlier this week to reach a swift and permanent compromise that would be capable of winning 60 Senate votes.

The House could take up the new legislation this week, which could allow the Senate to vote on the proposals ahead of the summer recess.

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