Estate Tax Scheduled for Repeal – But Will it Happen?

by Mark A. Krohn, Esq.
Jacobowitz & Gubits, LLP
The Economic Growth and Tax Relief Act of 2001 (“EGTRA”) repealed the estate tax beginning in the year 2010. However, the law automatically expires unless Congress acts before then to make the repeal permanent. Supporters of the current bills and, therefore, permanent repeal of the estate tax argue that the estate tax inhibits capital accumulation and economic growth, threatens the continued existence of family-owned businesses, violates the principles of good tax policy, and adversely effects the preservation of environmentally protected land.

Supporters of the reinstatement of the estate tax in 2011 argue that the estate tax reduces inequality among taxpayers, induces giving to nonprofit and charitable organizations, and helps to reduce the Federal deficit, especially while our military is fighting the war in Iraq. The House of Representatives passed the Death Tax Repeal Permanency Bill of 2005 on April 13,2005 which proposes to eliminate the sunset provisions contained in EGTRA thus making repeal of the estate tax permanent. As of the date of this writing there is no indication that the Senate will address this Bill or a companion Bill introduced by Sen. Jon Kyl (R-AZ). With the possibility that the Senate will fail to consider the matter, there is talk of compromising the Bills to eliminate complete repeal in favor of lowering the top marginal estate tax rate and, perhaps, increasing the applicable estate tax exclusion amount. Any proposed compromise legislation will likely receive a high level of scrutiny by the House of Representatives and the White House since both have issued statements in fall support of the Death Tax Repeal Permanency Bill of 2005.

One should note that there are other expiring tax provisions that will require the attention of Congress as we approach 2010 and each will negatively result in a loss of tax revenue. As a consequence, it may be very difficult for Congress to completely repeal of the estate tax in 2011. If this occurs, however, there is the likelihood that the top marginal estate tax rate will be lowered and the applicable exclusion amount increased.