Federal Estate Tax in the Fiscal 2008 Budget Resolution

Capital Letter No. 4

May 21, 2007

By Ronald D. Aucutt

The 110th Congress continues to talk a lot about the estate tax, but with no guarantees of action.

Dear Readers Who Follow Washington Developments:

We dare not take our eyes off Congress for a minute! No sooner was Capital Letter Number 3 (May 7, 2007) posted to the website, but Congress took the subject matter of that Capital Letter to another level of interest and attention.

On May 9, 2007, when the Senate was considering the appointment of Senators to the House-Senate conference on the Fiscal Year 2008 budget resolution, Senator Jon Kyl (R-AZ) offered the following motion:

That the conferees on the part of the Senate on the disagreeing votes of the two Houses on the concurrent resolution S. Con. Res. 21 (the concurrent resolution on the budget for fiscal year 2008) be instructed to insist that the final conference report include the Senate position to provide for a reduction in revenues, sufficient to accommodate legislation to provide for permanent death tax relief, with a top marginal rate of no higher than 35%, a lower rate for smaller estates, and with a meaningful exemption that shields smaller estates from having to file estate tax returns, and to permanently extend other family tax relief, so that American families, including farmers and small business owners, can continue to enjoy higher after-tax levels of income, increasing standards of living, and a growing economy, as contained in the recommended levels and amounts of Title I of S. Con. Res. 21, as passed by the Senate.

153 Cong. Rec. S5838 (daily ed. May 9, 2007).

In explaining the motion, Senator Kyl said: “While the motion does not specify that amount, an exemption of $5 million per estate indexed for inflation is what is contemplated.” Id. at S5839.

Senator Kent Conrad (D-ND), the chairman of the Senate Budget Committee, opposed the Kyl motion, on the grounds that it was not paid for and that the subject was already covered by the Baucus amendment (discussed in Capital Letter No. 3), which he as a Senate conferee would be committed to support. Id. Nevertheless, Senator Kyl’s motion passed by a vote of 54-41, with eight Democrats in favor and no Republicans opposed. The binding effect of such a motion to “instruct” conferees, however, is unclear. Even provisions “sufficient to accommodate” the desired legislation would still leave the implementation up to the tax-writing committees.

Then on May 17, 2007, the House and Senate approved the budget resolution with intriguing references to the estate tax. The provisions of the budget resolution applicable to the House of Representatives (section 303(b)(2)) permit

one or more bills, joint resolutions, amendments, motions, or conference reports that provide for tax relief for middle-income families and taxpayers and enhanced economic equity, such as extension of the child tax credit, extension of marriage penalty relief, extension of the 10 percent individual income tax bracket, modification of the Alternative Minimum Tax, elimination of estate taxes on all but a minute fraction of estates by reforming and substantially increasing the unified credit, extension of the research and experimentation tax credit, extension of the deduction for State and local sales taxes, and a tax credit for school construction bonds … provided that such legislation would not increase the deficit or decrease the surplus for the total over the period of fiscal years 2007 through 2012 or the period of fiscal years 2007 through 2017.

H.R. Rep. No. 110-153, 110th Cong., 1st Sess. 27 (2007).

With respect to the corresponding language of the budget resolution applicable to the Senate (section 303(a)), an overview prepared by the staff of the Senate Budget Committee stated:

The Conference Agreement supports middle-class tax relief, including extending marriage penalty relief, the child tax credit, and the 10 percent bracket subject to the pay-as-you-go rule. It also supports reform of the estate tax to protect small businesses and family farms. House provisions include additional procedural protections to help ensure fiscal responsibility.

The proviso that the contemplated tax relief “not increase the deficit or decrease the surplus for the total over the period of fiscal years 2007 through 2012 or the period of fiscal years 2007 through 2017” – what the Senate Budget Committee’s overview refers to as “procedural protections to help ensure fiscal responsibility” – can fairly be interpreted to mean that under the budget resolution the Ways and Means Committee will not include any tax relief provisions that are not “paid for” through increases of other taxes or projected budget surpluses. This will be an especially hard standard to meet in view of the current deficit that the budget needs to overcome and the commitment of Ways and Means Committee Chairman Charlie Rangel (D-NY) and other Members of Congress to give priority to the very expensive task of fixing the individual alternative minimum tax.

Hence, no legislation is guaranteed by these provisional actions and statements. But “our” tax – the estate tax – has certainly received more attention in the first five months of the 110th Congress than most of us would have predicted.

Ronald D. Aucutt