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House Votes Overwhelmingly for Repeal of Estate Tax

  • July 1st, 2003

House lawmakers overwhelmingly approved 264 to 163 a bill to permanently repeal the estate tax. The House now hands the contentious issue on to the Senate, where the measure appears short of the votes needed to pass. Meanwhile, the National Farmers Union says the House bill would actually increase taxes for moderately sized family farms.

Sen. Charles Grassley, R-Iowa, chairman of the Finance Committee, said, "Right now, I think it would be difficult to get the 60 votes" needed to overcome an expected Democratic-led filibuster. A similar repeal bill fell six votes short of the 60 needed for Senate passage last June.

Supporters of a permanent repeal, however, were encouraged by the House vote, noting the bill passed by a larger margin than a similar measure last year. They plan a full-court lobbying press on the Senate.

Under current law, individuals with estates above $1 million ($2 million for joint filers) are subject to a 49 percent tax rate. The exemption gradually rises and the tax rate drops until 2010, when the estate tax disappears -- only to return to its pre-2001 level once the current tax bill expires in 2011. The bill passed by the House would make repeal permanent.

The estate tax generated about $30 billion last year, and most of these revenues came from estates valued at more than $20 million. Proponents of repeal have tried to characterize it as a way to save family farms, but the National Farmers Union (NFU) says that the House action actually could increase taxes for family farmers.

NFU President Dave Frederickson explained that under the House repeal proposal, the "stepped-up" basis clause contained in the current estate tax statute would be lost. This means that heirs to moderately sized estates could face capital gains tax liabilities. "This legislation would establish a large new tax on American families that have more modest means and that would never be subject to the estate tax," he said.

"This is not a farm issue," said House tax writer Jim McDermott (D-Wash.), adding that it is more about "rich people hiding behind combines."

Under the current estate tax law, wealthier individuals can reduce their estate tax liability by giving to charity. Some have argued that if the tax is repealed, people will give less to charity. Frank J. Doti, a professor of law and taxation law at Chapman University School of Law, analyzed charitable giving trends both before and after the modern estate tax was first imposed in 1917.

Doti found that charitable contributions increased dramatically after the estate tax was instituted, leading him to speculate that the reverse could happen if the tax were eliminated. Summarizing his findings in the Gift Planner''s Digest, Doti says that "The data may prove that irreparable financial harm would befall charitable organizations if there were permanent repeal [of the estate tax]."

To read an article published in the Salt Lake City Tribune on House passage of the estate tax repeal, go to: http://www.sltrib.com/2003/Jun/06192003/nation_w/nation_w.asp

Local Elder Law Attorneys in Ashburn, VA

Samantha Fredieu

Hale Ball Carlson Baumgartner Murphy PLC
Fairfax, VA

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Needham Mitnick & Pollack, PLC
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Jean Ball

Hale Ball Carlson Baumgartner Murphy PLC
Fairfax, VA

Last Modified: 07/01/2003

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