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Katrina Delays Estate Tax Vote and Medicaid Cuts

  • September 8th, 2005

In the aftermath of the nation's worst natural disaster, Congress has at least temporarily lost its stomach for reducing the taxes of the wealthiest Americans while cutting benefits to the poorest.

The devastation wrought by Hurricane Katrina and the sluggish federal assistance to indigent victims has postponed congressional efforts both to repeal the estate tax and to pare $10 billion from the Medicaid program. Among the proposed Medicaid cuts were provisions to further delay Medicaid eligibility for individuals who transfer assets.

Relief efforts are running close to $700 million a day and the total federal cost could reach as high as $100 billion. "The costs are all but certain to wreak havoc with Mr. Bush's plans to reduce the federal deficit and possibly his plans to extend tax cuts," said The New York Times.

Estate Tax Vote Postponed

Senate Majority Leader Bill Frist (R-Tenn.) put off indefinitely a vote on eliminating the estate tax that had been scheduled for Sept. 6. Repeal of the estate tax would benefit the wealthiest 1 percent of American households and deprive the federal budget of more than $70 billion a year once fully implemented.

In a letter to Frist, Senate Majority Leader Harry Reid (D-Nev.) wrote, "Given the tragic and devastating events along the Gulf Coast, members of the Senate would have great difficulty explaining why we were debating the estate tax during our first days back when we know hundreds of thousands of families are suffering."

However, informed sources say it is almost certain that the Senate will vote on the issue after it takes action on additional hurricane relief. Shortly before the vote's postponement, Senate taxwriter Jon Kyl (R-AZ) proposed another compromise that would increase the unified credit to an exclusion equivalent of $5 million, change the federal estate tax rates to a flat rate of 15 percent in 2010, and reduce the gift tax after 2009 to a flat rate of 15 percent, among other provisions.

Delay in Medicaid Cuts, and Possible Abandonment

Republican leaders have announced that they will suspend action on budget reconciliation bills that included $10 billion in Medicaid cuts. They said they will resume action on the legislation in a few weeks.

Congress's 2006 budget resolution had called for the Senate Finance Committee and the House Energy and Commerce Committee to recommend by September 16 how to make $10 billion in spending reductions to Medicaid. Sens. Jeff Bingaman (D-N.M.), Blanche Lincoln (D-Ark.), Gordon Smith (R-Ore.) and Olympia Snowe (R-Maine) -- all members of the Finance Committee -- sent a letter to Committee Chair Chuck Grassley (R-Iowa) urging him to postpone the budget reconciliation process. Moreover, Sens. Smith and Snowe have said that in light of the devastation wrought by Katrina, Congress should reconsider altogether its decision to cut Medicaid.

Tom Kahn, Democratic staff director to the House Budget Committee, said, "We think the announcement of the delay is good news. We think it reflects a recognition that the Republican reconciliation bill has the wrong priorities for the country, especially after Katrina."

Local Elder Law Attorneys in Ashburn, VA

Margaret O'Reilly

Margaret A. O'Reilly, PC
Herndon, VA

Mindy Felinton

Felinton Elder Law & Estate Planning Centers
Rockville, MD

Jean Ball

Hale Ball Carlson Baumgartner Murphy PLC
Fairfax, VA


Last Modified: 09/08/2005

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