Members of the Senate today indicated that they want to reduce estate taxes without eliminating estate taxes.
Senators delivered that message through votes on a series of amendments to a non-binding budget resolution.
Senators voted 99-1 for a proposal introduced by Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, to set the estate tax at the 2009 level–with a $3.5 million individual exemption and a 45% maximum tax rate for estates that must pay the tax–and index the exemption for inflation.
A second proposal, to create a reserve fund that would permit the government to increase the individual estate tax exemption to $5 million and cut the maximum tax rate to 35%, lost on a 38-62 vote.
Sen. Ken Salazar, D-Colo., introduced that proposal.
Several senators, including Sen. Blanche Lincoln, D-Ark., say they prefer the Salazar proposal. Those senators contend that freezing the estate tax exemption and maximum tax rate at the 2009 level would not do enough to protect small businesses and family farms.
Sen. Jon Kyl, R-Ariz., introduced a proposal that would have set the estate tax exemption at $5 million with a maximum tax rate of 35%.
The Kyl proposal lost on a 50-50 vote.
Sens. Blanche Lincoln, D-Ark., and Mary Landrieu, D-La., voted with the Republicans
Sen. George Voinovich, R-Ohio, voted with the Democrats.
The vice president can break ties in the Senate, but he was not present at the time of the vote.
Another proposal, introduced by Sen. Lindsey Graham, R-S.C., that also would have set the exemption at $5 million and the maximum tax rate at 35% failed 47-52.
Lawmakers considered the proposals on the Senate floor, while working on the fiscal year 2009 federal budget resolution.
The budget resolution has no direct effect on the federal budget, but it will help shape how easily certain types of bills can get to the floor of the Senate.
The Economic Growth and Tax Relief Reconciliation Act of 2001 calls for the federal government to phase out the estate tax and eliminate it completely in 2010. If, however, Congress fails to act, the estate tax will spring back to 2001 levels – with an individual exemption of $1 million and a 55% maximum tax rate – in 2011.
Under current law, the 2009 individual exemption is set to be $3.5 million, and the maximum tax rate would be 45%.
Historically, opponents of the estate tax, who call it the “death tax,” have favored eliminating the estate tax.
Many life insurers profit from selling products aimed at helping customers reduce or pay their estate taxes, and life groups have supported the idea of reducing the number of taxpayers affected by the estate tax rather than the idea of eliminating the tax.
Larry Raymond, president of the Association for Advanced Life Underwriting, Falls Church, Va., welcomed the Senate votes.
“It is clear from events this week that, even with a large number of competing priorities, the Senate continues to focus time on estate tax reform,” Raymond says. “We know a number of key Senators are very interested in seeing this issue resolved” before 2010.
The Senate Finance Committee will hold a hearing on estate taxes in mid-April, but the AALU does not expect to see action on the issue until 2009, at the earliest.