110th Congress convenes for its Second Session. What should we expect? What
should those of us who have monitored the volatile estate tax legislation, at
least since 1997 or 2001, look for? How about the folks who have worked longer
than that – decades in some cases – for repeal of the estate tax? What can they
realistically hope for?
Today is also
the day for the Iowa caucuses – proof that the presidential campaign at last has
entered its final year! We will not wake up tomorrow knowing who our next
President will be. We may not learn much at all. But the drama is a clear
reminder that there is a lot going on, and even as Congress is back in town
looking like it’s ready to work, we know that the distractions will be great.
history does not make Congress-watchers optimistic. Early in the consideration
of the budget resolution last March, Senate Finance Committee Chairman Max
Baucus (D-MT) identified the State Children’s Health Insurance Program (SCHIP)
as the first priority of an amendment that the Senate approved by a vote of
97-1. Even so, a short-term extension of the SCHIP program, satisfactory to no
one, was signed by the President only on December 29. Democrats, of course,
blame Republican obstructionism; Republicans blame Democratic expansionism.
Congress blames the White House, and the White House blames Congress. The House
blames the Senate, and the Senate blames the House. And so on.
the IRS has mailed out 2007 income tax packages that do not reflect the one-year
alternative minimum tax relief that Congress did not enact until late in
December. The IRS estimates that it will be February 11 before its computers
are adequately reprogrammed to handle some of the changes affecting as many as
13.5 million taxpayers. Again, a number of fingers of blame have been pointed.
other things that Congress has on its mind, it is hard to imagine that it will
be able to give much attention to the estate tax. It is also hard these days to
expect ground-breaking tax legislation of any kind in an election year.
background, however, recent history suggests a few considerations that
Congress-watchers should keep in mind:
estate tax is controversial. Many regard it as an unfair tax on income that has
already been taxed. Others regard it as an important tool to discourage
inefficient and undemocratic concentrations of wealth. These feelings, whether
realistic or not, often run deep.
2. In any
event, the estate tax is challenging to administer. This is partly because of
the stressful occasion upon which it is imposed, and the very fact that it is
not regularly wrestled with (like the annual income tax) makes it harder to
understand at the time it is paid. But the biggest challenges in complying with
the estate tax are that it is based on the value of assets that are often
non-marketable and hard to value and that it is influenced by complex and
seemingly disconnected or overlapping rules.
3. There may
still be a lot of rank-and-file residual sympathy in Congress for repeal of the
estate tax. Of the 272 Members of the House who voted in April 2005 for
permanent repeal of the estate tax, 227 returned to the current Congress, nine
more than a bare majority. Of the 57 Senators who voted in June 2006 to take up
that bill in the Senate (fewer than the necessary 60 votes), 52 are back in the
current congressional leadership does not share this distaste of the estate
tax. Moreover, even those who would prefer repeal appear resigned to political
realities that prevent it. Examples include Chairman Baucus and Ranking Member
Charles Grassley (D-IA) of the Senate Finance Committee, who expressed such
views at a committee hearing on the estate tax on November 14, 2007.
5. At that
November 14 hearing, Chairman Baucus promised more extensive hearings in 2008,
but he pointed to action in the 111th Congress (2009-2010) as the goal.
parties could be embarrassed if the repeal-reinstatement two-step scheduled for
2010 and 2011 takes effect – Republicans because they caused it in 2001, and
Democrats (if they retain control of Congress) because they failed to fix it.
estate tax has been mentioned in the presidential campaign – perhaps not so much
of a surprise in view of the number of candidates. Governors Romney and
Huckabee and Mayor Giuliani have supported repeal and criticized Senator McCain
for voting against repeal, while Democratic candidates have generally criticized
repeal as a “tax cut for the rich.” Nevertheless, the estate tax is unlikely to
be a large factor in the overall campaign, as candidates focus on broad issues
of interest to more voters. The new President in 2009 is not likely to be
heavily invested in the estate tax issue one way or the other.
Consistent with the history of both repeal efforts and compromise efforts in
recent years, the congressional approach to the estate tax is likely to be
forged by a small bipartisan group of Senators “in the middle.” The House of
Representatives, for the sake of putting the issue to rest, is likely to go
along with whatever the Senate is able to muster 60 votes to do. There is not
likely to be a House-Senate conference. For the same reason, the President is
likely to sign the legislation.
considerations suggest that there might be important estate tax legislation –
not this year, but in 2009 – providing more phased-in reductions of rates and
increases in exemptions. That congressional attention might also extend to
selected substantive issues, such as reunification of the estate and gift tax,
transferability of unused exclusions from a deceased spouse to the surviving
spouse, and possibly valuation. Nevertheless, in view of a demanding agenda of
international and domestic issues and a sharply-divided electorate reflected in
a close balance of power, one can never be sure.
And there is
one more thing. Sometimes Congress’s idea of a “permanent” or “stable”
compromise produces still more uncertainty and challenges for those of us
involved in complying with the rules on a day-to-day basis. Again, there are no
110th and 111th Congresses accomplish, the lawyers of McGuireWoods Private
Wealth Services and Fiduciary Advisory Services are equipped and ready to
continue to assist our clients in understanding and complying with estate tax
requirements, and we are committed to doing that in a way that maximizes the
ability of thoughtful individuals to achieve their family, business, and