House Ways and Means Committee Chair Bill Thomas (R-CA) has thrown his hat in the ring of estate tax reform proposals wiht H.R. 5638, the “Permanent Estate Tax Relief Act of 2006.” A floor vote in the House is expected as soon as June 22.
The proposal abandons estate tax repeal in favor of larger exemptions (currently $2 million and increasing to $3,500,000 in 2009), and lower rates (currently 46% and dropping to 45% in 2007), in order to head of a return to higher rates (55% plus a bubble rate) and lower exemption ($1,000,000) in 2011 and thereafter.
The proposal would impact decedent dying and transfer made starting in 2010, when under current law, the estate tax faces a one year repeal.
It would establish an exemption amount for gift and estate taxes (and also for the generation skipping transfer tax) of $5 million per person per lifetime, and surviving spouse could elect to use any unused exemption of a deceased spouse, something not possible under current law which is a basis for a great deal of estate planning activity.
The firsts $25 million would be taxed at the maximum capital gains tax rate(currently 15%, set to increase to 20% in 2011 unless extended) and the balance would be taxed at twice that rate (currently 30%, set to increase to 40% in 2011 unless extended).
Existing "step up in basis" rules, which eliminate capital gains taxes on gains accruing prior to a death, would remain in place. Currently law would switch to a "carry over basis" rule in 2010.
The deduction for state death taxes would be eliminated, presumably in an effort to discourage their imposition.
An unrelated provision would exclude 60% of certain capital gains on timber sales from taxation in 2006-2008. Can you say pork?
The proposal is better than some that have been proposed in Congress recently, some of which would simply reduce the estate tax rate to 15%. This proposal is particularly reasonable if current artifically low capital gains tax rates are not extended. But, is still exceedingly generous to decedents with estates under $25,000,000, in most cases simply imposing a tax in lieu of capital gains taxes that accrued during life and imposing no additional estate tax on the heirs at all.
This proposal might very well peel off the three Democratic Senators needed to overcome a Senate filibuster of estate tax repeal, if complete estate tax repeal were not part of the debate. Senator Frist has indicated that he wants to bring an estate tax bill to the floor of the Senate before the 4th of July, and if this is passed by the House of Representatives tomorrow (and it probably wouldn't make it to the floor if the votes weren't there), it would be an obvious candidate for a negotiated rule with an up or down vote without amendments in the Senate on this bill only in Frist's time frame.
you ever wonder about his estate tax bill
Bill Gates to Relinquish Duties at Microsoft in 2008
Bill Gates will give a lot of his estate to charity, in part as a result of the estate tax. His father is a major voice in favor of retaining the estate tax.
Lots of links here.
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