Congress will need to address the estate tax as it seeks to simplify the tax code as a whole, experts told the Senate Finance committee today at a hearing.
Currently, the estate tax is in the midst of a gradual phase-out, with the tax set to be eliminated in 2010 under a 2001 law. However, current law would not make the repeal permanent, and the tax would return to 2000 levels in 2011.
“It seems unlikely that Congress will simply let the tax cuts expire as scheduled,” said Leonard Burman, a senior fellow at the Urban Institute, Washington. “The potential behavioral responses to the 1-year estate tax holiday are too ghoulish to contemplate.”
Extending the estate tax, and others passed in the first 4 years or President Bush’s term, would be costly, however, Burman added, noting that a Congressional Budget Office estimate of $2.3 trillion in lost tax revenue from 2008 through 2018 if the cuts are extended.
The question of what to do with the estate tax has been debated between members of Congress who seek to eliminate it entirely and those who seek to reform it to affect only the wealthiest estates.
Burman talked about a survey that showed that a majority of respondents who felt the rich should pay more in taxes actually opposed the estate tax, which he referred to as “highly progressive” in its nature.
“The estate tax is obviously fraught with controversy,” Burman said, “but a reasonable compromise would be to extend the 2009 exemption of $3.5 million and top tax rate of 45%. This would exempt all but very wealthy estates from the tax and might defuse the issue politically.”