H.R. 4154: Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009

H.R. 4154

Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009

Date
December 3, 2009 (111th Congress, 1st Session)

Staff Contact
Communications

Floor Situation

H.R. 4154 is being considered on the floor under a rule on Thursday, December 3, 2009. This legislation was introduced by Rep. Earl Pomeroy (D-ND) on November 11, 2009. The rule is expected to provide for the text H.R. 2920, the Statutory Pay-As-You-Go Act of 2009, to be added to the legislation. The bill was referred to the Ways and Means Committee, which took no official action.

Bill Summary

H.R. 4154 would permanently extend the estate tax on assets transferred following a death at the current level.   The legislation would exclude amounts up to $3.5 million and permanently set the tax, commonly referred to as the "death tax," rate at 45 percent.  Under current law, the death tax is set to expire in 2010 and then go back into effect in 2011.  In addition, H.R. 4154 would not index the exemption rate to inflation. 

In addition, the rule attach the text of H.R. 2920, the Statutory Pay-As-You-Go Act of 2009, which passed the House on July 22, 2009, by a vote of 265-166, to the underlying legislation.   According to press reports, the additional legislation would be added to the bill in order to appease certain Democrats who are concerned the Death tax extension would increase the deficit by an estimated $234 billion over ten years.  A full summary of the PAYGO provisions and additional information is available at the Conference website.

 

Background

In 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which included a phase out of the death tax by increasing the exemption level and reducing the tax rate.  The current exemption is $3.5 million and the rate is 45 percent-the same level that would be permanently extended by H.R. 4154.  Under current law, the tax is set to expire on January 1, 2010, and then come back in 2011, with an exemption of $1 million and a rate of 55 percent.  According to reports, H.R. 4154 would reduce revenues by $234 billion over the next ten years by raising the exemption and lowering the tax rate scheduled to take effect under current law.

Many Members have long-supported a complete repeal of the death tax because it taxes individuals at their death and, in effect, is double tax on assets that were already subject to regular income taxes.  In addition, the tax disproportionally affects the assets of small businesses and farms that are transferred at the time of death.  Given the current economic crisis, many Members agree that now is a particularly inopportune time to raise taxes in the short term by not allowing the death tax to expire under current law.  Since passage of the Democrats' trillion dollar "stimulus," more than 2.8 million jobs have been lost and unemployment stands at a 26-year high.

According to a study by Douglas Holtz-Eakin, former Director of Congressional Budget Office (CBO), eliminating the death tax could have dramatic positive effects on the economy and spur job creation.   According to the analysis, a repeal of the tax could have the following results:

 

•  Increase small business capital by over $1.6 trillion.

•  Increase the probability of hiring by 8.6 percent.

•  Increase payrolls by 2.6 percent.

•  Expand investment by 3 percent.

•  Create 1.5 million additional small business jobs

•  Reduce the current jobless rate by .9 percent.

Eliminating the tax would increase the incentive to raise and expend capital because it directly punishes wealth accumulation and transfer.  Thus, repealing the tax would have an impact on both existing small businesses and farms that generate wealth and those who receive wealth in a transaction after death.   According to the Small Business Administration (SBA), small businesses and firms employ more than half of all U.S. workers.

In addition to the negative effects on U.S. employers during a job crisis, another concern with H.R. 4154 is that the exemption rate is not indexed to increase with inflation.  As inflation occurs over time, more and more individuals and businesses will be subject to the tax, which according to its proponents is meant to only impact the wealthiest Americans.  Similar to how the Alternative Minimum Tax (AMT) was designed to hit less than 200 individuals and now is regularly skirted by Congress because it would affect two-thirds of taxpayers earning between $50,000 and $100,000, would allow more Americans to pay the tax than Congress now intends.

 

Cost

A formal CBO score of H.R. 4154 was not yet available as of press time. However, press reports indicate that the legislation would result in a deficit increase of $234 billion over ten years, which would likely not be offset with other revenue increases.