Recently I read an interesting article put out by the Dow Jones Newswires. It reported that Senators seeking a bipartisan deal to handle the Estate Tax mess created by Congress have reached a standstill as several Senate Democrats strongly condemned the efforts to reduce the rates.
President Obama has proposed exempting Estates worth less than $3.5 million, or $7 million for couples, and taxing wealth above that amount at a 45% tax rate. The Obama plan would add to the deficit, since it is a tax cut compared to current law and “pay-as-you-go” budget rules require most tax cuts to be offset with new tax increases or spending cuts. However; Congressional Democrats agreed to waive that requirement for 2011 and 2012 with respect to the President’s Estate Tax proposal.
Senators that want to reduce Estate Tax rates even further have in the past two weeks closed in on a compromise that would start at Obama's proposed levels in 2011, but gradually phase down to a 35% rate and a $5 million exemption level.
An interesting additional proposal discussed by the Senators is the concept of creating pre-paid trusts, under which individuals can benefit from a lower Estate Tax rate if they pay the government in advance of their death. This would generate revenue in the short term as some Estate owners take advantage of the pre-paid option, but would result in lost revenues in later years.
On Tuesday, May 18th the Senators said that the Senate proposal was “in limbo.” "Nothing is clear about how the Estate Tax will be considered," said Sen. Jon Kyl (R., Ariz.), the lead Republican in the negotiations. "Last week I believed there was an agreement on what the details were going to be. That may not be the case now." Senator Baucus (D. Mont.), Chairman of the Senate Finance Committee, is reported to have said "There's no agreement on estate tax, neither on substance nor on process. None whatsoever." Senator Baucus is one of two Democrats involved in talks with Republicans, the other being Sen. Blanche Lincoln (D., Ark.).
According to some Senators present at a closed-door meeting of Democrats on Tuesday (05/18), several Senators denounced the plan in strong terms Certain Senators argued that with problem budget deficits and with many Americans still out of work, it is the wrong time to cut taxes on the richest Americans. Sen. Bernard Sanders (D., Vt.), one of the Senate's most liberal members, said "[t]he idea that we would make significant exemptions within the Estate Tax to give more tax breaks to the top three-tenths of 1% is nauseating. I will do everything I can to stop that."
Apparently, it is still “politics as usual”. I’ll let you know as this drama unfolds.