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House Cuts Estate Taxes, Bill Awaits Uncertain Fate in Senate
By a solid bipartisan vote of 269-156, the House last week approved estate tax relief legislation that would permanently raise the exemption threshold on all estates and reduce rates for taxable assets.
Prior to the vote, NAHB sent a letter to every House member urging them to support H.R. 5638, the “Permanent Estate Tax Relief Act of 2006.” Because of the importance of this issue to the housing industry, NAHB designated passage of the bill as a “key vote” for lawmakers.
The measure, which would take effect on Jan. 1, 2010, would exempt the first $5 million of an individual’s estate from taxes. The exemption would be $10 million for couples and would be indexed for inflation. Estates valued between $10 million and $25 million would be taxed at the capital-gains rate, which is now 15% but is scheduled to rise to 20% in 2011. Estates worth more than $25 million would be taxed at twice the capital gains rate, or 30%, under current law.
Last year, the House passed H.R. 8, the “Death Tax Repeal Permanency Act of 2005," which would completely abolish the estate tax.
While NAHB strongly supports congressional efforts to completely and permanently eliminate the estate tax, this goal has been consistently thwarted in the Senate. Earlier this month, the Senate fell three votes short on a procedural maneuver that would have allowed the chamber to act on full repeal. Following the vote, Majority Leader Bill Frist (R-Tenn.) conceded that there was not enough support in the Senate to pass full repeal of the estate tax this year.
Under current law, the estate tax, also known as the “death tax” to its detractors, would gradually phase out until it is fully repealed in 2010. However, without permanent repeal or some type of reform, the tax will roar back to life in 2011 to its pre-2001 level — a 55% tax rate on amounts exceeding a $1 million exemption.
This year there is a minimum tax rate of 46% on the amount that exceeds a $2 million exemption.
H.R. 5638 is a compromise designed to elicit enough Senate support to win passage while also providing significant estate tax relief. The measure contains a 60% deduction for qualified capital gains on timber, which is designed to attract the support of Democratic senators in Washington and Arkansas.
“H.R. 5638 would protect more small businesses from the estate tax while lowering estate tax liability overall for many others,” said NAHB President David Pressly. “The legislation also brings more certainty and simplicity to estate tax planning, easing the administrative and financial burdens on modest, family-owned businesses. We urge the Senate to act quickly to approve this bill.”
At this point, it is uncertain whether there is enough support in the Senate to approve H.R. 5638. Frist has indicated he would like to take the measure to the Senate floor before the July 4 congressional recess if he can secure enough votes for passage.
NAHB is now working with Senate staff to build support for this compromise bill.
To view the legislation, click here and type the bill number in the center screen box.
For more information, e-mail Greg Brown at NAHB, or call him at 800-368-5242 x8421.
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