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April 2005
by James C. Musser, ASBA Washington Representative

One step closer to death. The federal estate, gift and generation skipping tax, more commonly referred to as the Death Tax, has taken another step toward its own extinction with a vote of the U.S. House of Representatives to abolish the hated levy. By a vote of 272 to 162 the House acted to permanently repeal the Death Tax. A strong bipartisan majority agreed with Congressman Kenny Hulshof (R-MO), sponsor of the repeal legislation, who said, "The death of a family member should not be a taxable event, period." Minority Leader Nancy Pelosi (D-CA) led the opposition to the bill and many small business owners and family farmers would be surprised to learn that according to Pelosi they are "the super-rich." During floor debate, Pelosi described the bill as "reverse Robin Hood" and said that by passing the repeal "We're taking money from the middle class and giving it to the super-rich." A Democratic alternative was rejected by a vote of 198 to 238.

Under current law, there is an exclusion from the estate tax for estates valued at less than $1.5 million. The top estate tax rate for 2005 is 47%. The Death Tax is slated to phase out completely by the year 2010 but, due to a quirk in Senate rules, the original legislation passed in 2001 allows the tax to return in 2011 when the 2001 tax bill expires. The new legislation, if adopted by the Senate will make the repeal complete and permanent. As recently as 1993, then House Majority Leader Richard Gephardt (D-MO) was advocating increasing the amount of a decedent's estate that would be subject to the tax so that taxation would be levied on all estates over $200,000. Repeal of the Death Tax was an outgrowth of the Republican Contract with America which vowed to reduce the tax and then to remove it entirely.

The repeal battle now moves to the Senate where long-time proponent of repeal Senator Jon Kyl (R-AZ) has been empowered to seek a deal to ensure the 60 votes necessary to pass the bill over the threatened Democratic filibuster. Senator Charles Schumer (D-NY) is the point man for the Democrats on the issue and his willingness to negotiate with Senator Kyl has been taken as a good sign that the long-standing logjam in the Senate may be broken in favor of the repeal. There is a strong consensus that taxpayers need certainty so that they will be able to adequately plan for any taxes. There is much speculation that the two sides may agree on a plan which does not completely repeal the Death Tax but exempts estates of $10 million or less and sets the top tax rate at 15%.

ASBA will continue to monitor developments on this important issue and be a strong voice in favor of repeal of the Death Tax.

James C. Musser, Esq. is a legislative consultant based in Falls Church, Virginia. His reports are updated monthly.