Estate Tax Rules for the Future

May 14, 2007

Facing expiration of the estate tax in 2010, the U.S. Senate voted 51-41 to reaffirm its support for a budget resolution that establishes the current-law 2009 estate tax rules through 2012. In 2009 the per-person estate tax exemption will be $3.5 million and the top tax rate will be 45 percent.

Under the Economic Growth and Tax Reconciliation Act of 2001, the estate tax will expire in 2010, followed in 2011 by an individual exemption of $1 million and a top tax rate of 55 percent. The Senate vote was part of its efforts to develop instructions for House and Senate conferees who will be working on the next five-year budget resolution.

In the last Congress, Senate Republicans fell four votes short of a measure that would have increased the estate tax exemption to the first $5 million of an individual’s estate and would have lowered the top estate tax rate to 35 percent. In the new Democratic-controlled Congress there appears to be bipartisan support for continuing the estate tax rate at 2009 levels starting in 2010. In fact, support has increased since March 23, when senators voted 51-48 in favor of preserving the 2009 levels.

Budget resolutions are important because appropriations bills that follow budget resolution guidelines can pass with a simply majority rather than the 60 votes generally needed. The House and Senate have each passed their own budget resolutions and once their conferees agree on a compromise resolution, the final version must be approved by both the House and Senate. The House version of the budget resolution does not address the estate tax issue.