On December 3rd, the U.S. House of Representatives passed H.R. 4154 which would make permanent the federal estate tax rules currently in place in 2009 – a $3.5 million exemption and a forty-five percent (45%) tax rate for estates which exceed the exemption. Under the House’s bill, the estate tax rate and exemption would not change from year to year as under the current law.
The House’s bill does not address any of the other estate tax reform proposals being circulated around Washington. These include: (a) portability of the estate tax exemption between spouses (which would allow a surviving spouse to use the unused exemption of a predeceased spouse); (b) indexing the estate tax exemption for inflation so that the real value of the exemption would stay the same over time; and (c) unifying the gift and estate tax exemption. Currently, the gift tax exemption is only $1 million, so that the estate and gift tax exemptions are $2.5 million apart.
H.R. 4154 passed the House of Representatives by a vote of 225-200. No Republicans voted for the bill and 26 Democrats joined the Republicans in voting “no”. The bill now moves to the Senate, but it is unclear whether the Senate, in the midst of the ongoing health care debate, will find time to address the federal estate tax during 2009. Some observers have speculated that the Senate will pass a one year extender to maintain the current $3.5 million exemption and forty-five percent (45%) tax rate during 2010, rather than allow the scheduled 2010 repeal of the estate tax to occur.