Escalating Estate Tax Proposal Reinforces Reality Disconnect

Senators Sanders (VT), Whitehouse (RI), and Harkin (IA) have introduced an estate tax bill that would establish an escalating estate tax structure starting at 2009's $3.5 mil exemption and 45% rate and capped with a 65% "billionaire's surtax". Here's an excerpt of today's National Review article which is available in its entirety to subscribers:

"According to a letter [the bill sponsors] were circulating, the measure would impose a 10 percent "billionaire's surtax" on the value of inheritances worth more than $500 million per spouse, or $1 billion per couple. That would be on top of a 55 percent rate on the value of estates above $50 million. Below $50 million but above $10 million, and the rate would be 50 percent; and between $3.5 million and $10 million, estate values would be taxed at 45 percent, same as in 2009 law that has since lapsed.Estate values below $3.5 million would go untaxed, also as in the 2009 law"

The article goes on to quote from the same letter, "It's time for multimillionaires and billionaires to pay their fair share," Obviously the concept of double taxation is lost on the bill's sponsors. The bill includes special relief for family farms and landowners which begs the question why all family businesses aren't exempted.

Gridlock, Deficits, and an Election Year

I spent much of last week on policy issues trying to poke holes in my own assertions that Washington has all but shut down already for the rest of the year as it pertains to major legislation such as energy/climate, financial reform, and tax policy. Unfortunately I'm now back in Columbus with little evidence to the contrary. Today's piece in The Politico reinforces the Senate's lack of appitite for any more monster initiatives and spending. The key challenge is that there are plenty of smaller, inexpensive or non-spending measure bills out there that could pass, but leadership's insistence on packaging these items into massive, monster-bills with ever-ballooning price tags seems likely to submarine several good ideas. All that being said, I also left D.C. wary of what we might see come up during the Senate's "lame-duck" session after the November elections. These are always unpredictable sessions, and there could be several key Senators no longer with constituencies to worry about pleasing with these votes.

Proposed Budget is a Mixed Bag

The President's $3.8 trillion proposed budget released today for fiscal year 2011 proposes to extend several of the "2001 Bush tax cuts" and the somewhat misleading "payroll tax credit", but not for all taxpayers. Further, the proposed budget assumes extension of 2009's estate tax with a $3.5 mil exemption and 45% tax rate, and the repeal of the LIFO accounting method which is estimated to miraculously generate $59 bil.

The budget proposes a 2.7% increase in discretionary, non-military spending from 2010 levels to $1.16 trillion, however that deemed "non-security spending" is proposed to drop 1.1%.

No Deal Yet on Estate Tax

This CQ article reports some lawmakers' concern that there could be an estate tax-free 2010, then a massive estate tax hike in 2011 if a deal isn't reached very soon this year. The House recently passed a permanent extension of 2009's $3.5 mil exemption and 45% tax rate, but the extension is not indexed for inflation. In the Senate, the Family Business Estate Tax Coalition, of which HARDI is a member, has been successful in generating strong bi-partisan support for an extenstion that includes a $5 mil exemption and 35% tax rate. Hence the log-jam between the two chambers.

House Passes Estate Tax Bill

Today the US House of Representatives passed H.R. 4154 which would permanently extend 2009's estate tax $3.5 mil exemption and 45% tax rate. The bill now goes to the Senate where there will hopefully be an opportunity to phase in increases in the exemption and decreases in the tax rate.