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Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act

On December 3rd, the House passed the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 (HR 4154) by a vote of 225-200 to permanently extend estate tax relief to ensure that 99.8% of estates in America never pay a dime of taxes. This bill is a sharp departure from the last eight years in which Republicans fought to completely repeal the estate tax - providing tax cuts to help only the wealthiest 2 in 1,000 and a responsible compromise that is consistent with proposals in the President's budget and the Congressional budget resolution.

The bill maintains the estate tax exemption at $7 million per couple, instead of letting it drop to $2 million in 2011, and maintains the current tax rate of 45 percent. Without the bill, the estate tax would be eliminated entirely in 2010; and in 2011, the maximum estate tax rate would then increase to 55 percent (from 45 percent this year), applying to all estates above $1 million per individual. According to the Joint Committee on Taxation 2011, only 7,600 nationwide will pay estate tax under the bill - 37,000 fewer than under current law. 

This bill is good for American small businesses and farmers, which are key to job creation and economic growth:

  • Supported by the National Farmers Union, the bill provides tax critical certainty and stability for farmers and small businesses as they face the enormous challenges of the economic crisis, as well as peace of mind at the difficult time of a loved one's death.
  • The $7 million exemption for couples will help many farmers, as the average farm household net worth ranged from $586,000 for small farms to $2.2 million for very large farms in 2008. [USDA, Economic Research Service]
  • Only 100 small business and farm estates would owe any estate tax in 2010 if the 2009 rules were extended, and virtually none of them would have to be sold to pay the tax. [Center on Budget and Policy Priorities, 12/2/09]

Even Warren Buffet noted, 'I would hate to see the estate tax gutted. It's a very equitable tax. It's in keeping with the idea of equality of opportunity in this country, not giving incredible head starts to certain people who were very selective about the womb from which they emerged.'

For calendar year 2009, the estate tax exemption amount is $3.5 million ($7 million total for a married couple) and the maximum tax rate on estates is 45%. The bill would permanently extend this estate tax exemption amount and tax rate. A breakdown:

  • CURRENT LAW: Without this change, the estate tax is scheduled to enter one year of full repeal in 2010 followed by a return of the estate tax in 2011 with much lower exemption amount ($1 million) and a much higher maximum tax rate (55%). 
  • BASIS RULES: Furthermore, the one year of estate tax repeal was coupled with enactment of carryover basis rules that will require many heirs to pay tax on the built-in gains of property inherited in 2010. The bill would repeal these carryover basis rules and protect many heirs from paying additional taxes. 
  • COST: This proposal is estimated to cost $234 billion over 10 years. The FY2010 Congressional Budget Resolution, (adopted by the House on April 29th) provided for a permanent extension of 2009 estate tax policy and assumed the enactment of Statutory PAYGO.
  • TIED WITH STATUTORY PAYGO: This legislation will be considered in the House under a procedure which will add the text of H.R. 2920, the Statutory PAYGO Act of 2009, as passed by the House on July 22nd before being sent to the Senate. The 'pay as you go' principle of budget discipline requires Congress to find a way to pay for any new spending, outside of an economic crisis. The Statutory PAYGO Act would make that principle law. The Statutory PAYGO Act would apply this principle to all new tax and spending policies, and would allow Congress to exclude the impact of continuing policies currently in place, including the estate tax.