Order Code RS21224
Updated June 11, 2002
CRS Report for Congress
Received through the CRS Web
Estate Tax: Legislative Activity in 2002
Nonna A. Noto
Specialist in Public Finance
Government and Finance Division
Summary
The provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA, P.L. 107-16) are scheduled to sunset on December 31, 2010. On April 18,
2002, the House passed legislation, H.R. 586, that would remove the sunset provision
and thereby make permanent all other provisions of the tax cut law enacted in June
2001. This includes making permanent the repeal of the estate tax. On June 6, the
House passed a free-standing estate tax repeal bill. H.R. 2143 would remove the sunset
provision of EGTRRA solely with respect to the estate tax provisions of the 2001 Act.
The House defeated a substitute amendment offered by Representative Pomeroy that
would have retained the estate tax but increased the estate tax exclusion to $3 million
per decedent effective January 1, 2003. The Senate was unlikely to consider a bill to
make the entire tax cut package permanent. Instead, the Senate agreed to take up the
estate tax alone through H.R. 8 under a unanimous consent agreement, before June 28,
2002. The Senate began consideration of the estate tax on June 11. In addition to an
amendment to permanently repeal the estate tax, amendments to alter but retain the
estate tax were expected to be introduced in the Senate. This report will be updated as
legislative events warrant.
Background
The estate tax and generation-skipping transfer (GST) tax are scheduled to be
repealed effective January 1, 2010, under Title V of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA, P.L. 107-16). However, under Title IX of the Act,
the estate tax repeal, and all other provisions of EGTRRA, are scheduled to sunset as of
December 31, 2010. In 2011 tax law would return to the law that was in place prior to the
enactment of EGTRRA on June 7, 2001. The exclusion amount under the estate tax
would be $1 million per decedent.
For those concerned with permanently repealing the estate tax, attention is now
focused on removing the sunset provision of EGTRRA with respect to the estate tax
provisions of the Act. The estate tax would then be eliminated from 2010 onward. Other
changes made by Title V of EGTRRA would also continue (such as replacing the step-up
in basis with a modified carryover basis for assets transferred at death and retaining the
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gift tax even when the estate tax is repealed). Alternative proposals that may be
introduced might retain the estate tax, but make some changes, such as making special
provisions for qualified family-owned business interests or accelerating an increase in the
exemption amount for all estates.
The revenue cost of permanently repealing the estate and generation-skipping
transfer tax has been estimated at $55.8 billion for FY2012. This is in comparison to
permitting EGTRRA to sunset and reinstating the law prior to EGTRRA.1
Actions and Announcements to Date
On April 18, 2002, the House passed H.R. 586, part of which would make permanent
all of the tax provisions of the $1.35 billion tax cut law enacted in June 2001, the
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16).
H.R. 586 would eliminate Title IX of EGTRRA which sunsets all other parts of the Act
as of December 31, 2010.2 Among its many effects, removing the sunset provision would
make permanent the repeal of the estate tax, scheduled under EGTRRA to take effect in
2010.
On April 16, Senate Majority Leader Thomas Daschle indicated that he would not
bring up for Senate floor consideration legislation to extend the entire EGTRRA tax cut
package. Instead, on April 23, in order to prevent the estate tax issue from delaying the
energy policy bill, S. 517, Senator Daschle agreed to schedule Senate consideration of a
free-standing estate tax repeal bill. Consideration is to begin sometime before June 28,
2002, under a unanimous-consent time agreement (described below).
In response, on May 14, House Majority Leader Richard Armey announced that the
House might consider its own free-standing bill to permanently repeal the estate tax
before the Senate considers the estate tax. On June 6, the House passed H.R. 2143, the
Permanent Death Tax Repeal Act of 2001. H.R. 2143 would remove the sunset provision
with respect to the estate tax provisions of EGTRRA, thereby making repeal of the estate
tax permanent. The House defeated a substitute amendment offered by Representative
Pomeroy that would have retained the estate tax but increased the estate tax exclusion to
$3 million per decedent effective January 1, 2003.
On June 11, the Senate began its consideration of the estate tax by taking up H.R. 8.
H.R. 2143 and Substitute Amendment
H.R. 2143, the Permanent Death Tax Repeal Act of 2001, was introduced by
Representative Dave Weldon on June 12, 2001, soon after the enactment of EGTRRA
on June 7, 2001. As introduced, the bill would simply remove the sunset provision with
1 U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects of H.R. 2143,
“Permanent Death Tax Repeal Act of 2001,” JCX-51-02, 107th Cong., 2d Sess., June 4, 2002.
2 In addition to extending the provisions of EGTRRA, P.L. 107-16, H.R. 586 contains provisions
to improve taxpayer protection and Internal Revenue Service accountability. H.R. 586 passed
the House on April 18, 2002, by a vote of 229 to 198.
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respect to Title V of EGTRRA, which contains the estate, gift, and generation-skipping
transfer tax provisions. The House passed H.R. 2143 June 6, 2002 by a vote of 256-171.
Representative Pomeroy offered an amendment in the nature of a substitute to H.R.
2143 for the Democrats. The amendment was defeated by a vote of 197-231. The
amendment would retain the estate tax but increase the estate tax exclusion to $3 million
per decedent effective January 1, 2003, to remain at that level.3 Section 2057, the special
provision for qualified family-owned business interests, would be terminated at the end
of 2002, one year earlier than under EGTRRA. The maximum estate tax rate would
remain at 50% (where it is in 2002 under EGTRRA, compared with 55% under prior law).
But the 5% surtax would be reinstated to phase out the advantage of the graduated rates
and, in addition, the unified credit, for a range of estate values over $10 million.
The substitute amendment would repeal the modified carryover basis rules that
EGTRRA implements in 2010 and would instead continue the step-up in basis rules under
current law. (The step-up in basis rule eliminates capital gains tax liability for heirs on
all increase in asset values before the decedent’s death. EGTRRA’s modified carryover
basis limits the permitted step-up in the basis of assets transferred at death to $1.5 million
per decedent, plus $3 million for assets transferred to a surviving spouse.)
The Senate’s Unanimous Consent Agreement
The Senate began consideration of the estate tax issue on June 11. On April 23,
2002, the Senate reached a unanimous consent agreement under which it was to take up
H.R. 8 by June 28, 2002.4 Under the agreement, when the bill reaches the floor, only four
amendments to the bill will be in order, all of which must pertain to the estate tax.
Senator Daschle or his designee may offer one amendment to the bill (which must be the
first amendment offered) and two second-degree amendments to that amendment, after
which Senator Gramm may offer one amendment to the bill. For each amendment, there
will be a motion (requiring 60 yea votes) to waive the Budget Act. If the Budget Act is
waived for a particular amendment, it will then be debated for two hours equally divided.
If any of the amendments is adopted, the Senate will proceed to vote on final passage of
the bill. If none of the amendments receives the 60 votes needed to waive the Budget Act,
the bill will be returned to the calendar and further consideration would occur on H.R. 8
only if it were later again called up for consideration.
Estate Tax Amendments Previously Offered in the Senate
An amendment to remove the sunset on the repeal of the estate tax was proposed by
Senator Jeff Sessions for Senator Jon Kyl on February 5, 2002. The amendment was
3 Under EGTRRA, the estate tax exclusion is scheduled to rise from $1 million in 2002 and 2003,
to $1.5 million in 2004 and 2005, $2 million in 2007 and 2008 and $3 million in 2009, before the
tax is repealed in 2010.
4 H.R. 8, the Death Tax Elimination Act of 2001, was passed by the House on April 4, 2001.
Many of the provisions of H.R. 8 were included in Title V of EGTRRA, P.L. 107-16. H.R. 8
would have repealed the gift tax as well as the estate and generation-skipping transfer taxes. For
more information, see CRS Report RL30912, H.R. 8: The Death Tax Elimination Act of 2001,
by Nonna A. Noto.
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considered by the Senate on February 6 but not voted upon. S.Amdt. 2807 was an
amendment to S.Amdt. 2721 to H.R. 622, the economic stimulus bill.
On February 13, 2002, the Senate agreed, by a vote of 56 yeas to 42 nays, to an
amendment expressing “...the sense of the Senate that the repeal of the estate tax should
be made permanent by eliminating the sunset provision’s applicability to the estate tax.”
(Sixty votes would be needed for any amendment to be considered under the unanimous
consent agreement in the Senate, described above.) S.Amdt. 2850 was introduced by
Senators Jon Kyl and Don Nickles as an amendment to S.Amdt. 2850 to S. 1731, the
Senate’s farm aid bill.5
The specific amendments to be offered to H.R. 8 under the unanimous consent
agreement in the Senate have not yet been released. However, the amendments regarding
the estate tax that were introduced, but not voted upon, in April 2002 in relation to S. 517,
the energy policy bill, may offer an indication of the types of amendments likely to be
offered to H.R. 8.6
On the Republican side, Senator Phil Gramm introduced an amendment to make the
repeal of the estate (death) tax permanent.7 Senator Gramm’s amendment would have
removed the sunset provision of EGTRRA with respect to estate, gift, and generation-
skipping transfer taxes only.
On the Democratic side, Senator Byron Dorgan introduced a proposal for an “estate
tax with full tax deduction for family-owned business interests.”8 Senator Dorgan’s
proposal would have amended several provisions in Title V of EGTRRA, the title which
deals with estate, gift, and generation-skipping transfer taxes. It left the sunset provision
of EGTRRA in place for provisions other than Title V.
Notably, effective in 2003, the Dorgan proposal would eliminate the dollar limits on
the special deduction for qualified family-owned business interests (Section 2057 of the
Internal Revenue Code) and make the deduction permanent. Currently the maximum
amount of the deduction for qualified family-owned business interests, in combination
with the applicable exclusion amount available to all estates, is $1.3 million. Under
EGTRRA, section 2057 is scheduled to be repealed in 2004 when the applicable
exclusion amount for all estates rises to $1.5 million. Thus, under EGTRRA, there would
no longer be preferential estate tax treatment for family-owned businesses compared with
5 S. 1731 was the Agriculture, Conservation, and Rural Enhancement Act of 2001. Further action
on S. 1731 occurred as H.R. 2646, which became P.L. 107-171. The estate tax reference was not
included in the final Act.
6 S. 517 was a bill to authorize funding the Department of Energy to enhance its mission areas
through technology transfer and partnerships for fiscal years 2002 through 2006. S. 517 was later
incorporated in H.R. 4 as an amendment.
7 S.Amdt. 3144 (Gramm) to S. 517.
8 Senator Dorgan’s proposal was introduced as three separate amendments to S. 517, all with the
same language but designed for use in different parliamentary settings: S.Amdt. 3293, S.Amdt.
3303, and S.Amdt. 3304.
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other assets after 2003. In direct contrast, the Dorgan proposal would restore preferential
treatment for family-owned businesses and make it unlimited.
The Dorgan proposal would retain the estate and generation-skipping transfer taxes
after 2009. It would keep the step-up in basis rule for determining the basis for assets
transferred at death, and not introduce the modified carryover basis in 2010. It would let
the maximum rate of tax fall to 45% as scheduled under EGTRRA, but remain there from
2007 on, with no repeal in 2010. It would eliminate the further reduction of the maximum
gift tax rate from 45% to 35% in 2010. It would increase the applicable exclusion amount
(the estate tax exemption) scheduled for 2009 from $3.5 million to $4 million per
decedent, and set it to remain there from 2009 on.9
There could also be a Democratic amendment to H.R. 8 to retain the estate tax but
accelerate the increase in the exemption amount scheduled under EGTRRA.
For Additional Information
CRS Electronic Briefing Book, Taxation, “Federal Estate and Gift Tax,” available at
[http://www.congress.gov/bfbk/html/ebtxr35.html].
CRS Report RL31061, Estate and Gift Tax Law: Changes Under the Economic Growth
and Tax Relief Reconciliation Act of 2001, by Nonna A. Noto.
CRS ReportRL30600, Estate and Gift Taxes: Economic Issues, by Jane G. Gravelle and
Steven Maguire.
CRS Report 95-416, Federal Estate, Gift, and Generation-Skipping Taxes: A Description
of Current Law, by John R. Luckey, Legislative Attorney.
9 The exemption would remain per decedent. Unlike some proposals offered in previous years,
the Dorgan amendment did not provide that any of the personal estate tax exemption amount not
used by the first spouse to die could later be applied to the estate of the surviving spouse. That
alternative would mean the exemption per couple would be $8 million even without estate tax
planning. The current unlimited marital deduction, that is, the ability to transfer assets to a
surviving spouse free from estate tax, would remain in effect.