US Senate Committee Explores Estate Tax Alternatives

by Mike Godfrey, Tax-News.com, Washington

17 March 2008

An United States Senate committee on Wednesday held a hearing to explore alternatives to the estate tax, and to consider proposals for a transition towards a new type of estate tax regime.

The hearing, orchestrated by Senate Finance Committee Chairman Max Baucus (D-Mont), continued the finance panel’s review of the federal estate tax system, in anticipation of the scheduled expiration of current estate tax law in 2010-2011.

Baucus, who supports full repeal of the estate tax, pledged to work this year toward an improved and simplified system to address the current system of taxation of assets transferred from one family member to another in life and at death.

In particular, he asked what rules should be considered for transition to a system that better serves family-owned businesses, including ranchers and farmers in rural states.

“I’m interested in simplifying the estate tax, which continues to unfairly burden family-owned businesses like the farms and ranches in my home state of Montana and around the country. People plan their estates and if we move to a different system, we need safeguards in place to make that transition go smoothly," Baucus commented.

Responses from witnesses at the hearing included a suggested tax credit that would be issued for prior taxes paid under the current system, and the idea of deferring at the time of transfer assessed taxes on assets such as land and livestock, until such time as the assets are sold.

Another suggestion was moving to an income inclusion system, which would count transferred assets as income, and tax them as such.

However, Baucus conceded that it might be difficult to achieve committee action on estate tax legislation this year, although he announced that he fully intends to work with his colleagues toward that goal.

Under current law, the estate tax will gradually decline until it is fully eliminated in 2010. However, in 2011, the tax returns in full force, allowing an exemption from the estate tax of USD1 million per person, and taxing all other estates under a progressive tax rate structure, topping 55%.

Just 9,600 US estates will be subject to the estate tax in 2009, according to the Congressional Joint Committee on Taxation. But this number will jump to an estimated 62,000 in 2011.

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