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House Passes Bill to Permanently Repeal Tax on Smaller Estates

On June 22, the House of Representatives approved H.R. 5638, a measure to exempt from taxation individual estates worth up to $5 million, couples would receive an exemption on estates worth up to $10 million. Individual estates valued between $5 million and $25 million would receive a permanent reduction to a 15 percent tax, while those valued above $25 million would be taxed at twice the capital gains rate or 30 percent.

The Senate had hoped to pass similar legislation before adjourning for the July 4 recess. When the Senate failed to gain the 60 votes necessary to cut off debate on the measure, they were forced to postpone the vote indefinitely. Senator Mary Landrieu (D-LA) offered alternative legislation in the “spirit of compromise” in hopes breaking the deadlock on the estate tax issue. Under the Landrieu proposal, smaller individual estates worth $5 million or less and couple estates worth $10 million or less would be exempt (same as the House bill). Estates worth more than $10 million would be taxed at 35 percent and very large estates worth more than $100 million would be taxed at 40 percent. Landrieu hopes her approach will attract enough Democrats to surpass the 60 votes needed to proceed on estate tax repeal.

Should Congress fail to address the increase in capital gains set to take effect in 2011, the House bill would cap the capital gains tax at 20 percent for assets worth between $5 million and $25 million. Estates with more than $25 million in assets would be subject to a 40 percent capital gains tax. If Congress fails to pass legislation to cap the capital gains tax, a maximum cap gains rate of 55 percent will be imposed in 2011.

The House has made it clear that there approach is a final offer and that they will not accept any changes to the legislation they approved. The Senate will have a hard time garnering the 60 votes needed to proceed on the House passed version, the House will not accept the Landrieu compromise and the elections are right around the corner. Under this scenario it appears gridlock will rule the day on Estate Taxes, but elections have a strange way of influencing Congress so there is always hope.