The tax cuts enacted under President Bush in 2001 scheduled a gradual repeal of the estate tax, with the amount of assets exempted from the tax gradually increasing over a decade and the tax rate on estates gradually dropping until the estate tax would disappear entirely in 2010. Like almost all of the Bush tax cuts, this cut in the estate tax expires at the end of 2010, meaning that rules scheduled under President Clinton would come back into effect in 2011.
The budget resolutions passed out of the House and Senate budget committees last week both assumed that the estate tax rules in place in 2009 would be made permanent, meaning the Bush estate tax cut would be partially made permanent but the estate tax would not disappear entirely. The Center on Budget and Policy Priorities released a report this week finding that about 99.7 percent of estates would be untouched by the tax under this proposal.
Incredibly, 51 Senators voted to approve an amendment offered by Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) to cut the estate tax even more than this. The 2009 estate tax rules exempt the first $7 million of assets passed on by a married couple (as well as assets they leave to charity) and tax the rest at a rate of 45 percent. The Kyl-Lincoln amendment puts the Senate on record as supporting a $10 million exemption for married couples and a 35 percent rate.
Before the Senate approved this amendment, Majority Leader Harry Reid (D-NV) said, "It is so stunning, so outrageous that some would choose this hour of national crisis to push for an amendment to slash the estate tax for the super wealthy."
Remarkably, both the Republican Senators and the "moderate" Democratic Senators who voted for this expanded break for families with millions of dollars to pass on to their heirs were largely the same Senators who claim to be concerned about budget deficits and the costs of the President's proposals to help working families.
The actual consequence of the amendment is unclear for several reasons. First, the amendment was written to be "deficit-neutral," meaning that if Congress wants to pass actual legislation to cut the estate tax, they would have to find a way to raise enough revenue to replace those billions lost. Some of the Senators who voted for the amendment would oppose a cut in the estate tax if it is deficit-financed (which any estate tax cut is likely to be). Second, the Senate then adopted (by a vote of 56 to 43) a confusing amendment creating a point of order AGAINST any estate tax cut if the Senate did not also provide some new tax cut, costing the same amount of money, for people earning less than $100,000. Whether that condition could be met is an open question.
Sorting through this confusing jumble of stated intentions and caveats will hopefully become unnecessary. The conferees crafting the final budget resolution should leave out the Senate's ludicrous cut in the estate tax.