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New Proposals to Repeal the Estate Tax
by Robert Moshman, JD
s the 107th Congress gets under way, a broad range of estate tax proposals have been launched. Most conservative of the proposals was S. 9 from Senator Tom Daschle (D-N.D.) who proposed a $1-trillion tax cut that includes a gradual increase in the unified credit to protect up to $2 million of an estate by 2010. As the law stands now, $675,000 of an estate is protected from estate tax and that amount will gradually rise to $1 million by 2006.
At the other end of the spectrum is S. 35, a more ambitious proposal that is sponsored by Senator Phil Gramm (R-Tex.) and Senator Zell Miller (D-Ga.) and which calls for a $1.6-trillion tax cut and a complete repeal of the estate tax along the lines of proposals made by President Bush during the last campaign.
Despite its breadth, the details of the latter proposal have been left largely vague, and even major components of the proposal, such as whether a carryover basis for appreciated assets transferred at death is part of the law, have not been addressed.
Another grey area that has become a topic for speculation is when an estate tax repeal would become effective. Prior proposals have always called for a gradual phasing out of the transfer tax system over a period of about eight or 10 years. This 10-year phase-in period is the approach taken in yet another new proposed estate tax repeal, S. 31, from Senator Ben Nighthorse Campbell (R-Colo.).
But in the current political context, there is an added consideration of trying to prevent any tax changes from being undone in the event that the Bush Administration does not hold on to the White House four years from now. In that scenario, plans that call for the repeal of transfer taxes to be phased in over 10 years would not yet be fully implemented and would be vulnerable to amendment-the Gore Administration of 2005 could conceivably postpone any changes that had not yet taken effect. In fact, a retroactive repeal of any changes phased in during 2003 and 2004, for instance, would be within the realm of possibility as well, so long it is limited to an adjustment of rates or credits.
To ward off such a turn of events, the repeal of transfer taxes could be accelerated, making it very complex, as well as politically expensive, to reintroduce the transfer tax system. However, an immediate repeal of transfer taxes would have major consequences, as outlined below, and not all of them will have been intended or foreseen.
Spanning the two extremes among the proposals are a trio of alternatives from Senator Richard Lugar (R-Ind.). These cover three possible approaches starting with S. 83, which would protect up to $1 million of an estate by 2002 (accelerating the current phase-in schedule by four years) and which would also protect up to $5 million of an estate by 2006. Lugar's other proposal, S. 84, would increase the credit to protect an estate of $5 million immediately. Finally, S. 82 would repeal the estate tax immediately.
In short, everything is back on the table. We may not know where we are going, but we appear to be heading there fast.
Robert Moshman, JD, can be reached at bmoshman@optonline or (800) 572?2468 with any questions, comments or suggestions. He authors the Estate Analyst.
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