Congressional Follies and Estate Tax Repeal
When the clock strikes midnight on December 31st, 2009, something remarkable will happen. For the first time since 1916, the estate tax will be completely eliminated, or will it? Thanks to Congress, we enter 2010 with massive uncertainty regarding this very complex and costly issue.
President Bush’s Wishful Thinking
President Bush’s 2001 tax cuts gradually phased out the estate tax, resulting in a complete elimination in 2010. But, the poorly written legislation sunsets in 2011 and reinstates the estate tax at draconian pre-2001 levels. The expectation was that Republicans would make the repeal permanent, but that opportunity never came before they lost their majority in the House and Senate.
Current State of Affairs
We entered 2009 with Democrats in control of Congress and while they were not in favor of complete repeal, there was a universal consensus that something had to be done to address the estate tax timeline. There was also a growing consensus that a compromise could be reached that locked in the generous 2009 tax rates (45%) and exemptions ($7m per couple).
In fact, by October of 2009, three major bills in Congress proposed such a compromise. Bipartisan support was strong, and the expectation was high that permanent reform would be passed before year end.
To everyone’s surprise, the issue has been tabled. There will be no vote this year – just a promise by Senate Finance Committee Chairman Max Baucus to implement permanent reform retroactively some time in 2010. This pledge to re-implement the estate tax retroactively presents legislative and legal challenges and prolongs the uncertainly that families have had to plan around for years. The fact that Congress could not find a permanent solution with eight years notice is shameful.