Wills, Trusts & Estates Prof Blog

Editor: Gerry W. Beyer
Texas Tech Univ. School of Law

Friday, July 29, 2011

Prediction for the Current Estate Tax Exemption

Estate tax Ronald D. Aucutt recently published Capital Letter No. 28, ACTEC, Jul. 25, 2011 on the ACTEC website. In the Letter, Aucutt predicts the future of the current estate tax exemption by taking a look at the history of recent tax legislation. An excerpt from the Letter is below:

In hindsight, the December 2010 legislative experience may have confirmed a few more things about the estate tax. After all, in the House of Representatives, with all the concerns of state and the world to deal with, the sole amendment that was offered and debated dealt with our little estate tax. The proposal to substitute 2009 law for the “deal” was defeated by a vote of 194-233 on December 16, 2010, exactly one year after the Senate had failed to take up the same proposal that the House had passed 225-200. That shift of some thirty votes, coupled with the 277-148 margin (seven votes short of two-thirds) by which the “deal” was then approved by a Democratically-controlled House of Representatives that did not yet reflect the results of the 2010 elections, as well as the 81-19 approval vote in the Senate, could signify, in part, a resignation to substantial estate tax relief. Indeed, the very prominence and intensity of the unsuccessful December 2010 effort in the House to go back to 2009 law could reflect a realization that that vote was likely the last chance to do so.

This leads to the conclusion that Congress is unwilling to incur the political cost of permitting the estate tax to return to a level more burdensome than 2011 law. Even a return to 2009 law would be distasteful. A return to 2001 law would be intolerable. The fact that a return to 2001 law is already the law in 2013 if Congress does nothing means that the pressure to do something to prevent that will be very great. And if Congress does anything, the pressure to maintain an exemption no lower than $5 million (probably indexed for inflation) and a rate no higher than 35 percent will be almost as great. Anything is possible, and surprises seem almost inevitable, but the $5 million exemption and 35 percent rate of current law, themselves a surprise when they were introduced without even a phase-in last December, now have at least a fighting chance of sticking around.

But when will we know? If the debt ceiling deal, either now or in a subsequent phase, really does get broad enough to revisit the “Bush tax cuts,” even the estate and gift tax might be addressed. If not, then it’s hard to see anything happening until next year – perhaps, as almost happened in 2005, right after Labor Day. Otherwise, there is the true last minute, another lame duck session in December 2012. And maybe even overtime action in 2013. Those possibilities, in order of increasing anguish, may also be in order of increasing likelihood.


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