Anti-Estate Tax Groups to Promote Near-Repeal Instead of Repeal

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In a major tactical retreat, the U.S. Chamber of Commerce, the National Federation of Independent Businesses and several other organizations that claim to represent the interests of business have announced that they will no longer push for repeal of the estate tax. They will, however, push for a plan that will gut the estate tax and that has received some support in the Senate.

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 will 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 will come back into effect in 2011. Many Republicans and some Democrats in the Senate have, in the past, supported permanently repealing the estate tax. 

President Obama and Democratic leaders in the House and Senate support a compromise that would prevent the estate tax from disappearing in 2010, but which would also unnecessarily cut the estate tax below the level it would reach in years after 2010 if Congress simply does nothing. This compromise would essentially freeze in place the estate tax rules in effect in 2009, which exempt the first $3.5 million in estate assets (or $7 million in the case of a married couple) and tax the rest at a rate of 45 percent.

Citizens for Tax Justice has argued that even this policy amounts to an unwarranted cut in the estate tax. State-by-state figures from CTJ show that only 0.7 percent of the deaths that occurred in 2006 resulted in any estate tax liability in 2007. (Estate taxes are usually paid in the year after the year in which an individual dies.) 2006 was a year in which the estate tax exempted the first $2 million in estate assets (or $4 million in the case of a married couple). (A proposal put forward by Congressman Jim McDermott in April would make permanent adjustments to the estate tax without giving away as much revenue.)

The coalition of business groups that has been trying for years to permanently repeal the estate tax now says it supports a permanent estate tax that exempts the first $5 million in estate assets (or $10 million in the case of a married couple) and taxes the rest at a rate of 35 percent.

A budget amendment with these basic parameters was approved by 51 Senators in April, but was not included in the final budget resolution adopted by Congress. It's difficult to know if a majority of Senators would ever really support the enactment of such a policy. The budget amendment was to be deficit-neutral (which would be difficult to achieve) and several of the 51 Senators who voted in favor would likely oppose a cut in the estate tax if it increased the budget deficit.

Any legislation to change the estate tax would require 60 votes. Democratic leaders are hoping to round up that many votes to pass a bill that at least extends the 2009 estate tax rules for one year, through the end of 2010, to prevent the estate tax from disappearing for a year. Then, sometime during 2010, Congress could take up the question of what the estate tax should look like in the long-run while they take up the larger debate over which components of the Bush tax cuts to extend.

At least one anti-estate tax group, the American Family Business Institute, refused to change its position and still backs full repeal of the estate tax. The organization is apparently linked to the American Family Business Foundation, which issued two studies earlier this year that claimed to show how repeal of the estate tax was vital to economic growth. CTJ released a report in May that examined the methodological flaws and illogical assumptions that underpin these two studies.

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