Senators of both parties are talking, but it may be mainly talk

Washington

Efforts are under way in the Senate to break the deadlock over repeal of the estate tax, but Democrats and Republicans are seemingly much farther away from a deal than recent reports have indicated.

Talks apparently have centered on a threshold level of $3 million to $5 million. But, some estimates say that if the final threshold is agreed upon as $3.5 million and the tax rate is set at the current gains tax rate of 15%, it would cost as much as 87% of total repeal.

Under current law, the threshold on the exemption rises through 2009, and the tax is completely eliminated in 2010. But it would return in 2011, with a $675,000 exemption and a top tax rate of 55%.

Immense interest in the issue has been triggered by the decision of Sen. Jon Kyl, R-Ariz., representing the advocates for repeal of the estate tax, to file an amendment to the energy bill now pending in the Senate.

Both the Wall Street Journal and the New York Times reported on the issue last week, and lobbyists and interest groups on both sides of the issue are stepping up their pressure on Congress and bombarding the public through ads and press conferences advocating their positions.

An industry lobbyist said Senate Republicans, led by Kyl, are pushing for a deal, and Minority Leader Sen. Harry Reid, D-Nev., has authorized talks, with Sen. Charles Schumer, D-N.Y., chairman of the Democratic Senatorial Campaign Committee, leading the effort.

However, one industry lobbyist said, “The negotiators are not as close to a deal as the Wall Street Journal has portrayed.”

Congressional staffers and lobbyists on the issue say the amendment has been “filed” to keep the Democrats’ feet to the fire on the issue, but introduction is unlikely because it would delay, if not kill, action on the energy bill, a Bush administration and Republican priority.

Kyl’s amendment would raise the threshold for taxing estates going forward to $10 million a person, with estates above that taxed at the 15% capital gains rate.

Negotiations are under way because Democrats have the votes to block repeal, which has been approved in the House in each of the sessions in Congress since a phased-in repeal was included in the 2001 tax bill. And some Republicans also are concerned about the assault on Treasury revenues that would occur if indeed the estate tax is totally repealed.

The estimated cost of total repeal is $745 billion over the first 10 years.

David Stertzer, executive vice president of the Association for Advanced Life Underwriting, based in Falls Church, Va., said, “AALU consistently has promoted sustainable reform as the best long-term solution to the estate tax issue.”

He added, “We are encouraged that repeal advocates have begun to talk earnestly about reform and we welcome the opportunity for the Congress to provide long-term certainty to this important issue.”

It is important, however, Stertzer said, “that in the course of reform discussions, the Senate focus on the long-term revenue impact of whatever reform proposal is considered.

“It is my understanding that the reform proposals that would provide a $5 million or $10 million individual exemption and a capital gains rate will lose remarkably similar amounts of revenue as repeal,” Stertzer said.

Kyl, along with the wealthiest Americans, is pushing for repeal now because, as his spokesman notes in confirming that talks are under way, “people need certainty as to what it would be going forward.”

However, industry lobbyists say the issue is being pushed now because all of the Bush administration tax cuts sunset in 2009 and because the alternative minimum tax engulfs more and more middle-class Americans every year, and could become a huge political issue by 2009.

In a recent statement to members, AALU and National Association of Insurance and Financial Advisors officials said, “While talks are at their preliminary stages, we do know that key moderate Republican senators have been in meetings on the subject, and momentum may be gathering behind this effort.”

An amendment to the energy bill filed by Sen. Jon Kyl, R-Ariz., would raise the threshold for taxing estates going forward to $10 million a person, with estates above that taxed at the 15% capital gains rate.