Taxation Legal News

Is Estate Tax Reform Dead?

Forbes.com

WASHINGTON, D.C. -
Senate Republicans' attempt to push through a permanent cut in the estate tax before adjourning was nothing short of a spectacular flop.

Despite having sweetened the tax cut with a minimum wage hike and provisions extending a host of popular tax breaks, the Senate leadership tempted only one senator who hadn't previously supported it: Robert Byrd, D-W.Va., gave in, but only thanks to a last-minute add-on that would have paid for the cleanup of abandoned coal mines.

The defeat seems all the more glaring because it comes on the heels of two other failed attempts to get the estate tax through the Senate--one as recently as June.

And yet Senate Majority Leader Bill Frist, R-Tenn., seems hardly chastened. Rather, he has exhorted his opponents to "rethink long and hard" during the four-week recess that began early today, suggesting that another vote is in the offing.

All told, supporters were three votes shy of the 60 needed to advance the legislation, which passed the House handily last week. The final tally, 56-42, reflected Frist's switch from yea to nay--a parliamentary tactic needed to preserve his flexibility to bring up the bill again later this session. But will another attempt really stand a chance?

A third of the Senate is up for reelection in November, and legislation to permanently lower the estate tax is popular with voters. If nothing is done, the estate tax will disappear altogether in 2010 before snapping back in 2011 at the older, far steeper rates. Few would relish such a turn of events.

Republicans are betting that Democrats will come back to Washington repentant after taking heat from voters, many of whom might also be dismayed by the defeat of the minimum wage hike. Groups working to repeal what they call the "death tax" will surely pull out all the stops to make August a very uncomfortable month for the waverers. Maria Cantwell, D-Wash., and Mark Pryor, D-Ark., are seen as prime targets for such pressure.

But Republicans are also at risk of voter backlash on the issue of policy leadership. Many supporters of estate tax repeal or reform are scratching their heads over Frist's strategy.

"Why would you couple estate tax reform with a minimum wage hike?" asks William Beach of the conservative Heritage Foundation. "If you really want to pass something, you have a standalone bill that the Democrats want to sponsor."

Lost amid all the political rhetoric is the fact that there is a consensus in the Senate for estate tax reform: Democrats want to lower the tax--albeit by a smaller amount than Republicans want--and they prefer to carve out exemptions in special circumstances or for particular industries. Blanche Lincoln, D-Ark., one of only four Democrats to vote yes on last night's bill, has floated such a plan, and it enjoys widespread support.

Regardless of the merits of the approach, it represents the best chance of compromise on an issue that is important to voters.

"There's no question that there are cases where this is a tough tax," says Gary Bass, executive director of Americans for a Fair Estate Tax, which advocates a moderate lowering of the tax.

With the old rates slated to return in 2011, it won't be long before the need for reform becomes urgent. The Senate leadership would be wise to not put off making a genuine stab at reform, as eventually it will become a consumer issue rather than just an irritant to small-business owners and the wealthy, warns Bass.

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	Did You Know?
	Form 5471 is Information Return of U.S. Persons With Respect to Certain Foreign Corporations Report information with respect to certain foreign corporations. A domestic partnership may have to file Form 5471 if it: Controls a foreign corporation; or Acquires, disposes of, or owns 5% or more in value of the outstanding stock of a foreign corporation; or Owns stock in a corporation that is a controlled foreign corporation for an uninterrupted period of 30 days or more during any tax year of the foreign corporation, and it owned that stock on the last day of that year.