Senate blocks chances for estate tax repeal
After a vote Thursday, repeal is off the table for now, and a compromise deal has yet to be reached.
NEW YORK (CNNMoney.com) Ė With Republicans unable to get enough votes to pass permanent estate tax repeal, the Senate on Thursday also failed to reach a compromise deal that would permanently lift estate-tax exemption levels and lower the top estate-tax rate.
In a vote on Thursday morning, only 57 senators voted for cloture, short of the 60 required. Cloture is a procedural vote that would have led to another one, limiting debate on permanent-repeal legislation and easing its passage, according to Tax Notes, a publication of Tax Analysts.
That second vote was expected to fail, but would have allowed the Senate to amend the permanent-repeal legislation with a compromise proposal.
A compromise was intended to bridge the divide between those who supported repeal and those who opposed it because of its estimated effect on the deficit.
Senators working on compromise proposals included Jon Kyl (R-Arizona) and Max Baucus (D-Montana).
The office of Senate Minority Leader Harry Reid (D-Nevada) told CNN's Washington bureau Thursday morning that no agreement had been reached on a scaled back version of the estate tax.
The latest compromise proposal was floated by Kyl, according to those. It would exempt the first $5 million of an estate, up from the current $2 million exemption (or $4 million for couples). It would tax the amount between $5 million and $30 million at 15 percent and anything above $30 million at 30 percent.
Currently, estates that exceed the exemption level are taxed in a graduated manner with rates starting at 18 percent and rising to 46 percent.
The liberal Center on Budget and Policy Priorities, which opposes repeal and has been very vocal indenouncing several compromise proposals as too costly, estimates that Kyl's latest proposal would have cost close to $800 billion between 2012 and 2021. That includes interest the federal government would pay on debt incurred to cover the lost revenue.
The CBPP earlier had estimated that full repeal during that same time period would have cost close to $1 trillion, including interest.
Those who support estate tax repeal contend, among other things, that the estate tax curbs incentives to invest and to expand businesses. They also say it is an unfair burden on family businesses and farms, the heirs to which may be forced to sell pieces of the business just to pay the estate tax bill.
Those who oppose repeal and the compromises proposed contend that there are already allowances for family businesses under current estate tax law, that repeal would be too costly during a time of high deficits and that it would benefit too few taxpayers.
Judging from comments made in a news conference following the vote on Thursday, there is some hope that a compromise deal still can be worked out. "We'll have to see what we can do about a slight compromise or change to get us to 60 votes," said Senator Robert Bennett (R-Utah) according to Congress Daily. "If it looks as if a deal can be made, it can be put back on the schedule very quickly."
Congress Daily noted that at least four Democratic senators who voted against cloture Thursday are in favor of scaling back the tax.
The estate tax exemption level has been on the rise since enactment of the Tax Relief Act of 2001. As a result, the number of estates subject to the estate tax has fallen steadily, from 2.2 percent of all estates in 2000 to 0.5 percent this year. By 2009 it is projected to fall to 0.3 percent.
Meanwhile the top tax rate has been on the decline, from 55 percent in 2000 to 46 percent today, lessening the tax burden on heirs of very large estates. Come 2010, the estate tax will be repealed entirely for one year. Then, barring changes by Congress, it is scheduled to be reinstated at its pre-2001 exemption level of $1 million with a 55 percent top rate.