Order Code RL32818
CRS Report for Congress
Received through the CRS Web
Estate Tax Legislation
in the 109th Congress
Updated May 3, 2006
Nonna A. Noto
Specialist in Public Finance
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

Estate Tax Legislation in the 109th Congress
Summary
Under provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001 (EGTRRA, P.L. 107-16), the estate tax and generation-skipping transfer tax
are scheduled to be repealed effective January 1, 2010. But the estate tax repeal, and
all other provisions of EGTRRA, are scheduled to sunset December 31, 2010. If the
sunset provision is not repealed, or the law is not otherwise changed beforehand, in
2011 estate and gift tax law will return to what it would have been had EGTRRA
never been enacted. The unified estate and gift taxes will be reinstated with an
exclusion amount of $1 million and a special deduction for family-owned businesses.
The maximum tax rate will revert to 55%.
Both before and after the enactment of EGTRRA, there have been efforts in
Congress, primarily by Republicans, to make estate tax repeal permanent. The 106th
Congress passed legislation that was vetoed by President Clinton in August 2000.
In both the 107th and 108th Congresses, the House passed legislation making the
repeal permanent, but the Senate did not. Democrats introduced bills, not enacted,
that would have retained the estate tax but raised the applicable exclusion amount.
The Bush Administration’s budget for FY2007 has once again endorsed
permanent repeal of the estate tax as part of a broader proposal to extend the major
income tax cuts enacted in 2001 and 2003. On April 13, 2005, the House passed
H.R. 8, a bill that would permanently repeal the estate tax starting in 2010.
Specifically, H.R. 8 would repeal the sunset provision of EGTRRA with respect to
Title V (Estate and Gift Taxes). It would thereby also preserve the modifications to
the gift tax and the modified carryover basis for assets transferred at death scheduled
to be put in place by EGTRRA in 2010. The House defeated the Pomeroy substitute
amendment (H.Amdt. 69), which would have retained the estate tax with higher
applicable exclusion amounts. Numerous other bills to repeal — or to retain but alter
— the estate tax have been introduced in the 109th Congress. The Joint Committee
on Taxation has estimated that enacting legislation in 2006 to make estate tax repeal
permanent effective in 2010 would cost $369 billion in lost revenues over the 10-year
forecast period FY2007-FY2016. The Treasury Department has estimated the 10-
year revenue loss at $339 billion.
Senate Majority Leader Bill Frist has made several attempts to bring permanent
estate tax repeal before the Senate. In the wake of Hurricane Katrina, Senator Frist
canceled a cloture vote scheduled for September 6, 2005, on a motion to proceed to
consider H.R. 8. In late April 2006, Senator Frist promised a vote on estate tax
repeal in May. Meanwhile, Senators Jon Kyl (R-Ariz.) and Max Baucus (D-Mont.)
have been meeting since early June 2005, trying to develop a bipartisan compromise
that would retain but alter the estate tax. On May 2, 2006, Senator Kyl announced
a new proposal with a $5 million per spouse exemption amount and an estate tax rate
of 15%, currently the maximum tax rate on capital gains. He cautioned that Senate
action on the estate tax might be delayed from May until June. This report will be
updated when new estate tax bills are introduced or other legislative activity
warrants.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Economic Growth and Tax Relief Reconciliation Act of 2001 . . . . . . . . . . . 1
The Senate’s Byrd Rule Under the Reconciliation Process . . . . . . . . . . . . . . 2
Legislative Activity in Prior Congresses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Preceding EGTRRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Remainder of the 107th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The 108th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Revenue Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Bush Administration’s Proposal for FY2007 . . . . . . . . . . . . . . . . . . . . . . . . 4
FY2006 Congressional Budget Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . 7
2005 Tax Reconciliation Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Main Differences Among the Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Bills to Permanently Repeal the Estate Tax . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Preserving Other Changes Made to the Taxation of Gifts and Bequests
by EGTRRA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Modified Gift Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Modified Carryover Basis at Death for Capital Gains Purposes . . . . . 10
Extending All of the Major Tax Cuts Made in 2001 and 2003 . . . . . . . . . . 11
Part of Fundamental Tax Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
When Permanent Repeal Would Take Effect . . . . . . . . . . . . . . . . . . . . . . . 13
Bills to Retain but Alter the Estate Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
A Possible Bipartisan Compromise . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Bills Introduced in the 109th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
House . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Senate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
For Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
List of Tables
Table 1. Estimated Revenue Changes Through FY2016 from Acting in 2006
to Permanently Repeal the Estate and Generation-Skipping Transfer Taxes
and Modify the Gift Tax Effective in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Estate Tax Legislation in the 109th Congress
Background
Economic Growth and Tax Relief Reconciliation Act of 2001
Under provisions of Title V of the Economic Growth and Tax Relief
Reconciliation Act of 2001 (EGTRRA, pronounced egg-tra, P.L. 107-16), the
exempt amount under the estate tax will continue to increase from $1.5 million for
decedents who died in 2004 or 2005, to $2 million for 2006-2008, and $3.5 million
for 2009. The maximum estate tax rate will continue to fall from 48% for decedents
who died in 2004, to 47% in 2005, 46% in 2006, and 45% for 2007-2009.
Effective January 1, 2010, the estate tax and generation-skipping transfer (GST)
tax are scheduled to be repealed. The gift tax is to remain in place with a cumulative
lifetime exclusion amount of $1 million and with a maximum marginal tax rate of
35% (equal to the highest rate for the individual income tax in 2006 and thereafter
under EGTRRA). However, the estate tax repeal, and all other provisions of
EGTRRA, are scheduled to sunset at the end of 2010. Title IX or Section 901 of
EGTRRA states that the provisions of the act do not apply after December 31, 2010.1
If the sunset provision is not repealed, or the law is not otherwise changed
beforehand, in 2011 estate and gift tax law will return to what it would have been if
EGTRRA had never been enacted. For the unified estate and gift tax, the applicable
exclusion amount would have risen to $1 million under prior law.2 The special
deduction for qualified family owned business interests (QFOBI) will be restored,
with a value of $1.3 million in combination with the applicable exclusion amount.
The maximum tax rate will revert to 55% for taxable estate values over $3.0 million,
with a 5% surtax on taxable estates over $10.0 million and up to $17.184 million.
1 The text of the sunset clause is as follows:
TITLE IX — COMPLIANCE WITH CONGRESSIONAL BUDGET ACT
Sec. 901. Sunset of Provisions of Act.

(a) IN GENERAL. — All provisions of, and amendments made by, this Act
shall not apply —
(1) to taxable, plan, or limitation years beginning after December 31, 2010, or
(2) in the case of title V, to estates of decedents dying, gifts made, or generation
skipping transfers, after December 31, 2010.
(b) APPLICATION OF CERTAIN LAWS. — The Internal Revenue Code of
1986 and the Employee Retirement Income Security Act of 1974 shall be applied
and administered to years, estates, gifts, and transfers described in subsection (a)
as if the provisions and amendments described in subsection (a) had never been
enacted.
2 The Taxpayer Relief Act of 1997, P.L. 105-34.

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The Senate’s Byrd Rule Under the Reconciliation Process
The sunset clause was included in EGTRRA so that the bill would comply with
the Senate’s Byrd rule.3 The Byrd rule applies only to reconciliation legislation.
Reconciliation is an optional procedure sometimes used by Congress to implement
budget resolution policies on revenues and mandatory spending. If so directed by the
budget resolution, House and Senate committees must develop legislation changing
laws within their jurisdiction sufficient to achieve the required budgetary changes.
The legislative recommendations of each committee usually are merged into an
omnibus reconciliation bill, which is considered under expedited procedures. Under
the Byrd rule, a point of order may be raised to strike “extraneous” matter from, or
prevent it from being offered to, reconciliation legislation. A motion to waive the
Byrd rule requires the affirmative vote of three-fifths of the Senate membership (60
votes).
The Byrd rule provides six definitions of what constitutes “extraneous” matter
for purposes of the rule. One of those definitions declares a provision to be
extraneous if it would decrease revenues in a fiscal year after the fiscal years covered
by the reconciliation legislation, and such decreases are greater than outlay reductions
or revenue increases resulting from other provisions in such title in such year.4
Consequently, a point of order may be raised in the Senate to strike, or prevent the
offering of, any proposal for a tax cut that is not offset by a spending cut and/or
revenue increase of equal magnitude in each year beyond the budget window covered
by the reconciliation bill.
The Byrd rule could restrict any current efforts to extend the reduction or repeal
of the estate and gift taxes beyond 2010 through the budget reconciliation process.
(The reconciliation instructions in the FY2006 budget resolution approved by the
House and Senate do not extend beyond FY2010.) A 60-vote waiver of the Byrd rule
would be required if the projected revenue losses in years beyond 2010 were not
adequately offset. In order to avoid the Byrd Rule altogether, bills to permanently
reduce or repeal the estate and gift taxes (or any other taxes, for that matter) could be
considered under regular legislative procedures.
Legislative Activity in Prior Congresses
Preceding EGTRRA. Even before the enactment of EGTRRA there were
efforts in Congress to permanently repeal the estate tax. The 106th Congress
approved H.R. 8, the Death Tax Elimination Act of 2000, but it was pocket vetoed
by President Clinton on August 31, 2000. The House sustained the President’s veto.5
3 The Byrd Rule is Section 313 of the Congressional Budget Act of 1974 (2 U.S.C. § 644).
For a detailed account, see CRS Report RL30862, The Budget Reconciliation Process: The
Senate’s “Byrd Rule
,” by Robert Keith.
4 Sec. 313(b)(1)(E) of the Congressional Budget Act of 1974. It applies to increases in net
outlays as well as decreases in revenues.
5 H.R. 8 was introduced in the 106th Congress on Feb. 25, 1999, on a bipartisan basis by
(continued...)

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Early in the 107th Congress, the House passed H.R. 8, the Death Tax Elimination Act
of 2001. Many provisions of that bill were included in EGTRRA enacted on June 7,
2001 (P.L. 107-16).6
Remainder of the 107th Congress. H.R. 2143, the Permanent Death Tax
Repeal Act of 2001 was introduced on June 12, 2001, just days after the enactment
of EGTRRA. But the estate tax did not receive further congressional attention until
the spring of 2002, in the second session of the 107th Congress. On April 18, 2002,
the House passed an amended version of H.R. 586, the Tax Relief Guarantee Act of
2002, part of which would have removed the sunset provision of EGTRRA and
thereby made permanent the repeal of the estate tax and all other provisions of the
2001 tax cut law. On June 6, 2002, the House passed H.R. 2143 which would have
removed the sunset provision solely from the estate tax provisions of EGTRRA (Title
V). The House defeated the Pomeroy Democratic substitute amendment that would
have retained the estate tax but increased the exclusion to $3 million per decedent in
2003.
On June 12, 2002, the Senate considered three amendments offered to H.R. 8
regarding the estate tax. The Conrad Democratic substitute amendment would have
retained the estate tax but increased the applicable exclusion amount to $3 million
in 2003 and $3.5 million in 2009, among other changes. The Dorgan amendment to
the Democratic substitute amendment would have provided a full tax deduction for
family-owned business interests, and raised the applicable exclusion amount to $4
million in 2009 for all estates, among other changes. The Gramm-Kyl (Republican)
amendment was identical to H.R. 2143. None of these amendments received the 60
votes needed to waive the budget point of order as established by a unanimous
consent agreement. On September 19, 2002, the House approved a resolution,
H.Res. 524, which called upon the Senate to approve H.R. 2143 before the 107th
Congress adjourned. The Senate did not act on the bill.7
5 (...continued)
Representatives Dunn and Tanner. The version of H.R. 8 approved by the House Ways and
Means Committee was an amendment in the nature of a substitute offered in the committee
by Chairman Archer. This was the version approved by the House and the Senate. For
further description of H.R. 8 in the 106th Congress, and the Democratic substitute
amendments offered in its place, see archived CRS Report RS20592, Estate Tax Legislation:
A Description of H.R. 8, The Death Tax Elimination Act of 2000
, by Nonna A. Noto (for a
copy contact the author).
6 H.R. 8 was reintroduced in the 107th Congress on March 14, 2001, on a bipartisan basis by
representatives Dunn and Tanner. It was replaced by an amendment in the nature of a
substitute by the Ways and Means Committee on March 29 and passed by the House on
April 4. For further discussion of H.R. 8 in the 107th Congress, and the Democratic
substitute amendments offered in its place, see archived CRS Report RL30912, H.R. 8: The
Death Tax Elimination Act of 2001
, by Nonna A. Noto, Apr. 9, 2001 (for a copy contact the
author). For a brief description of H.R. 8 and three other bills introduced in the first session
of the 107th Congress to permanently repeal the estate tax, see CRS Report RL30875, Step-
Up vs. Carryover Basis for Capital Gains: Implications for Estate Tax Repeal
, by Nonna
A. Noto.
7 For additional information, see CRS Report RS21224, Estate Tax: Legislative Activity in
(continued...)

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The 108th Congress. All together, 26 measures addressing the estate tax
were introduced in the 108th Congress, 19 in the House and seven in the Senate. The
bills can be grouped into three broad categories. First, eight House bills would have
made the repeal of the estate tax permanent after 2010. Two Senate joint resolutions
would have expressed the sense of Congress that the number of years during which
the estate tax is repealed should be extended, pending permanent repeal of the tax.
Second, one House bill and three Senate bills would have accelerated the repeal of
the estate tax — to 2003 or 2005. Third, 10 House bills and two Senate bills would
have retained but altered the estate tax. Some would have lowered the tax rates.
Some would have increased the exclusion amount for all estates. Some would have
forgiven the estate tax on family-owned businesses and farms but imposed a
carryover basis in calculating the capital gain if the heir later sold the business. Some
would have repealed the modified carryover basis instituted by EGTRRA and
returned to the step-up in basis rule for assets transferred at death. One would have
deposited revenues from the estate tax into the Social Security trust funds.
The House approved H.R. 8, the Death Tax Repeal Permanency Act of 2003
(Dunn) on June 18, 2003, by a vote of 264-163. H.R. 8 would have made the repeal
of the estate and generation-skipping transfer taxes permanent from 2010 onward by
exempting the estate tax provisions (Title V) from the sunset provisions of
EGTRRA. Prior to its vote on H.R. 8 the House debated and defeated the Pomeroy
substitute amendment. That amendment would have retained the estate tax but
increased the exclusion amount to $3 million per decedent, effective January 1, 2004.
It included other changes to the estate tax laws to partially offset the cost of
increasing the exclusion amount. The Senate did not take up H.R. 8 or any of its own
bills.8
Revenue Proposals
Bush Administration’s Proposal for FY2007
Among its revenue proposals for FY2007, the Bush Administration has once
again proposed to make permanent the tax cuts enacted in 2001 and 2003.9 This
would include making permanent the repeal of the estate tax and generation-skipping
transfer tax and the modifications to the gift tax as provided in Title V of the
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).10
7 (...continued)
2002, by Nonna A. Noto.
8 For additional information, see CRS Report RL31776, Estate Tax Legislation in the 108th
Congress
, by Nonna A. Noto.
9 U.S. Congress, Joint Committee on Taxation, Description of Revenue Provisions
Contained in the President’s Fiscal Year 2007 Budget Proposal
, 109th Cong., 2nd sess.,
Joint Committee Print JCS-1-06 (Washington: GPO, 2006), pp. 2-5.
10 U.S. Executive Office of the President, Office of Management and Budget, Analytical
Perspectives, Budget of the U.S. Government, Fiscal Year 2007
, p. 252; Table 17-3, p. 265.

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In February 2006, the Treasury Department published its estimates of changes
in federal receipts expected each year from FY2006 through FY2016 if legislation
to repeal the sunset provision (effective in 2010) with respect to the estate and gift
taxes were enacted in 2006. The Joint Committee on Taxation (JCT) released its
estimates of budget effects for the same period in March 2006. Both sets of estimates
are presented in Table 1.
The relatively modest estimated revenue losses from FY2006 through FY2010
stem primarily from a projected decline in gift tax revenues. The estimates are based
on the assumption that taxpayers would immediately begin to reduce taxable gifts
during their lifetimes if they knew that the estate tax would be permanently repealed
in 2010. In addition, the Treasury Department and the Joint Committee on Taxation
project that the enactment in 2006 of permanent repeal of the estate tax (effective in
2010) would modestly affect revenues from the individual income tax, in two
different ways. First, they assume that lifetime charitable donations and
accompanying tax deductions would fall, thereby increasing income tax revenues.
Second, they assume that capital gains realizations by the elderly would fall, thereby
decreasing income tax revenues.11
For the years prior to full repeal of the estate tax, the Treasury Department
estimated losses from $1.1 billion in FY2007 up to $2.7 billion in FY2010. The
JCT’s revenue loss estimates were slightly lower, ranging from $1.0 billion in
FY2007 to $2.7 billion in FY2010. For the years FY2011 and beyond, the JCT’s
revenue loss estimates were higher. FY2011 reflects a period of transition from
estate taxes for decedents dying in 2009 to no estate taxes in 2010 and beyond. For
FY2011 the Treasury estimated revenue losses of $23.8 billion and the JCT $30.0
billion.
For the years reflecting full repeal of the estate tax, Treasury estimated a revenue
loss of $53.1 billion for FY2012, rising annually to $70.3 billion in FY2016. The
JCT estimates rose from $55.7 billion in FY2012 to $78.8 billion in FY2016. The
five-year revenue loss estimate for FY2007-FY2011 was $31.4 billion for Treasury
and $35.1 billion for JCT. The 10-year revenue loss estimate for FY2007-FY2016
was $339.0 billion for Treasury and $369.2 billion for JCT.
To put these numbers in some perspective, the full set of revenue proposals
presented in the Bush Administration’s FY2007 budget were estimated by Treasury
to cost $285.3 billion over the five-year period FY2007-FY2011 and $1.7 trillion
over the 10-year period FY2007-FY2016. The JCT estimated a total revenue loss of
$297.3 million over five years and $1.9 trillion over 10 years.12 The revenue loss
associated with the repeal of the estate tax and the generation-skipping transfer tax
and the modification of the gift taxes represents 11.0% (Treasury) or 11.8% (JCT)
of the total proposed revenue losses over the five-year period FY2007-FY2011,
11 For more information, see CRS Report RL32768, Estate and Gift Tax Revenues: Several
Measurements
, by Nonna A. Noto.
12 See source notes for Table 1. Treasury Department, General Explanations of the
Administration’s Fiscal Year 2007 Revenue Proposals
, p. 146. JCT, Description of Revenue
Provisions Contained in the President’s Fiscal Year 2007 Budget Proposal
, p. 317.

CRS-6
before the full effects of total repeal are felt. However, it represents 19.5%
(Treasury) or 19.7% (JCT) of total estimated revenue costs over the 10-year period
FY2007-FY2016. This reflects the large effects of full estate tax repeal during the
second half of the 10-year period, FY2012-FY2016.
Table 1. Estimated Revenue Changes Through FY2016 from
Acting in 2006 to Permanently Repeal the Estate and
Generation-Skipping Transfer Taxes and Modify the Gift Tax
Effective in 2010
(millions of dollars)
Treasury
Joint Committee
Fiscal Year
Department
on Taxation
2006
-205
-204
2007
-1,102
-983
2008
-1,728
-1,521
2009
-2,181
-1,199
2010
-2,676
-1,559
2011
-23,758
-29,862
2012
-53,122
-55,661
2013
-56,853
-60,166
2014
-61,562
-66,503
2015
-65,757
-72,925
2016
-70,283
-78,798
2007-2011
-31,445
-35,124
2007-2016
-339,022
-369,177
Note: These estimates include the projected effect on individual income tax revenue, in addition to
estate and gift taxes.
Sources: U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal Year
2007 Revenue Proposals
(referred to as the Bluebook), Washington, February 2006, p. 143. The
Treasury Department’s annual estimates for FY2006 to FY2011, and the cumulative five- and 10-year
estimates beginning in FY2007 are also published in U.S. Executive Office of the President, Office
of Management and Budget, Analytical Perspectives, Budget of the U.S. Government, Fiscal Year
2007
, Table 17-3, p. 265. U.S. Congress, Joint Committee on Taxation, Description of Revenue
Provisions Contained in the President’s Fiscal Year 2007 Budget Proposal
, 109th Cong., 2nd sess.,
JCS-1-06, March 2006, p. 314. The JCT cumulative totals have been adjusted by CRS to begin in
FY2007 instead of FY2006.

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FY2006 Congressional Budget Resolutions
According to the House Budget Committee Majority Caucus, the FY2006
budget resolution approved by the House (H.Con.Res. 95, approved on March 17,
2005) could have accommodated permanent repeal of the estate tax.13 The House
budget resolution provided for $105.7 billion in tax cuts over the five-year period
FY2006-FY2010. Of that, $45 billion would be achieved under reconciliation
instructions.14
The FY2006 budget resolution approved by the Senate Budget Committee on
March 10, 2005, provided for a reduction in revenues of no more than $14.9 billion
in FY2006 and $70.2 billion over the FY2006-FY2010 period. According to the
Chairman’s Mark, the $70.2 billion amount was sufficient to accommodate a
permanent extension of the repeal of the estate tax.15 S.Con.Res. 18, approved by the
Senate on March 17, provided for a reduction in revenues of $19.016 billion in
FY2006 and $128.6 billion over FY2006-FY2010. These were substantially larger
revenue reductions than the numbers approved by the Senate Budget Committee.
The concurrent resolution on the budget for FY2006, H.Con.Res. 95, was
approved by both the House and the Senate on April 28, 2005. It provided for a
reduction in aggregate federal revenues of $105.7 billion over the five years FY2006-
FY2010. Of that total a reduction in revenues of $11 billion in FY2006 and $70
billion over the FY2006-FY2010 period would be carried out under reconciliation
instructions.16 The final budget resolution thus used the House Budget Committee
figure of $105.7 billion for total tax cuts and the Senate Budget Committee figure of
$70 billion for reductions under reconciliation for the FY2006-FY2010 period.
These five-year limits were considered adequate to accommodate permanent
repeal of the estate tax. However, as documented in Table 1 in the previous section,
looking only at the projected revenue losses for FY2006-FY2010 does not adequately
account for the much larger losses anticipated for FY2011 and beyond if the estate
tax is fully repealed.
13 U.S. Congress, House Committee on the Budget, Majority Caucus, FY20006 Budget
Resolution: Overview
, March 9, 2005. Available online at [http://www.house.gov/budget/
fy06overview.htm].
14 U.S. Congress, House Committee on the Budget, Concurrent Resolution on the Budget
— Fiscal Year 2006
, report to accompany H.Con.Res. 95, 109th Cong., 1st sess., H.Rept.
109-17, March 11, 2005 (Washington: GPO, 2005), pp. 17-18, 69-71, and 137.
15 U.S. Congress, Senate Budget Committee, Chairman Judd Gregg, Chairman’s Mark 2006
Budget
, March 9, 2005,pp. 3, 22. Available online at [http://www.senate.gov/~budget/
republican/pressarchive/FY06ChairmansMark.pdf].
16 U.S. Congress, House of Representatives, Concurrent Resolution on the Budget for Fiscal
Year 2006
, conference report to accompany H.Con.Res. 95, 109th Cong., 1st sess., H.Rept.
109-62, Apr. 28, 2005, Sec. 101(1)(B), Sec. 201(b), and Sec. 202(b).

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2005 Tax Reconciliation Bills

No provisions concerning the estate tax were included in the tax reconciliation
bills approved by either the House (H.R. 4297, approved on December 8, 2005) or
the Senate (S. 2020, approved on November 18, 2005) in the fall of 2005.17
Main Differences Among the Bills
Bills to Permanently Repeal the Estate Tax
All of the estate tax bills introduced in the 109th Congress prior to April 12,
2005, would permanently repeal the estate tax and generation-skipping transfer tax.
The bills to permanently repeal the estate tax differ in four main ways. One is
whether or not they would preserve the other changes to the taxation of gifts and
inherited assets made by EGTRRA. A second is whether the extension of estate tax
repeal is part of a broader effort to extend the income tax cuts enacted by the
Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and
Growth Tax Relief and Reconciliation Act of 2003. A third is whether the repeal of
the estate tax is part of a fundamental tax reform effort to replace the income tax and
possibly the payroll tax with some form of consumption-based tax. A fourth is when
permanent repeal would take effect.

Preserving Other Changes Made to the Taxation
of Gifts and Bequests by EGTRRA

Some bills to permanently repeal the estate and generation-skipping transfer
taxes take the approach of repealing the sunset provision of EGTRRA (Section 901
of P.L. 107-16) with respect to Title V of EGTRRA (Estate, Gift, and Generation-
Skipping Transfer Tax Provisions). By default these bills would also preserve the
other changes to the taxation of gifts and bequests made by EGTRRA. Relevant
among the other changes that would be preserved are the continuation of a modified
gift tax and the institution of a modified carryover basis (instead of a step-up in basis)
for assets transferred at death. The companion bills H.R. 8 (Hulshof) and S. 420 (Kyl
and Bill Nelson), H.R. 183 (Pitts), S. 7 (Kyl), S. 988 (Sessions), and S.Amdt. 849
(Frist) to H.R. 6 would remove the sunset provision of EGTRRA.18
Other bills to permanently repeal the estate and generation-skipping transfer
taxes take the approach of repealing Subtitle B of the Internal Revenue Code of 1986
(Estate and Gift Taxes). These bills would allow EGTRRA to sunset. This would
have the effect of repealing other changes made by EGTRRA, such as the modified
carryover basis treatment of assets transferred at death and the modified taxation of
gifts. Repealing Subtitle B would repeal the gift tax, in addition to repealing the
17 The Senate approved H.R. 4297 on February 2, 2006, after striking the original language
and replacing it with the contents of S. 2020.
18 S. 7, discussed later, would extend other tax cuts made in 2001 and 2003 as well. H.R.
8, H.R. 183, and S. 420 focus solely on making the repeal of the estate tax permanent.

CRS-9
estate tax and generation-skipping transfer tax. The step-up in basis treatment for
assets acquired from a decedent would remain as provided in Subtitle A (Income
Taxes) of the Internal Revenue Code. H.R. 25 (Linder), H.R. 64 (Cox), H.R. 1040
(Burgess), S. 25 (Chambliss), S. 812 (Specter), and S. 1099(Shelby) would repeal
Subtitle B.
Still another approach to permanently repealing the estate tax and GST tax is to
amend the U.S. Constitution. H.J.Res. 14 (Paul) proposes an amendment that would
prohibit Congress from levying taxes on personal incomes, estates, and gifts. This
would repeal not only the estate and gift taxes but also the income tax on capital
gains.
Modified Gift Tax. Under the provisions of EGTRRA a gift tax is retained
even when the estate tax and generation-skipping transfer tax are repealed in 2010.
The main reason given for maintaining the gift tax when the estate tax is repealed is
to protect income tax revenues. The gift tax is intended to discourage people from
gifting income-generating or appreciated assets to someone in a lower income tax
bracket and/or with offsetting losses. In the case of appreciated property, the donee
could sell the assets and pay a lower capital gains tax rate than the donor, and then
gift or bequeath the sales proceeds back to the original donor.
If Subtitle B of the Internal Revenue Code were repealed, the gift tax would be
repealed along with the estate tax and GST tax. However, if the sunset clause of
EGTRRA were repealed, the gift tax — as modified by EGTRRA — would remain
in effect after 2010. The cumulative lifetime exclusion amount for any one donor
would be $1 million.19 (This amount is not indexed for inflation.) Beyond that, gifts
up to $500,000 would be subject to the same marginal tax rate schedule that had
previously applied to both gifts and bequests (with marginal tax rates from 18% to
34%). Starting in 2010, when the estate tax is repealed, and continuing thereafter,
the top gift tax rate would be capped at 35% on cumulative lifetime taxable gifts over
$500,000. (This is in contrast to a maximum tax rate of 45% on gifts or bequests in
excess of $1.5 million scheduled for 2007 through 2009.) The 35% rate is equal to
the maximum tax rate on individual income scheduled by EGTRRA for tax year
2006 and subsequent years.20 The modified gift tax would continue after 2010 under
companion bills H.R. 8 (Hulshof) and S. 420 (Kyl and Bill Nelson), H.R. 183 (Pitts),
and S. 7 (Kyl). S. 988 (Sessions) would implement these changes to the gift tax
beginning in 2005 and S.Amdt. 849 (Frist) to H.R. 6 beginning in 2006.
If the provisions of EGTRRA are permitted to sunset and we return to prior law,
the unified estate plus gift tax exclusion would be $1 million. The maximum estate
19 This lifetime exclusion is in addition to the annual exclusion available for gifts of up to
$11,000 (indexed for inflation) per donor per donee. There is an exclusion from the gift tax
for qualified transfers of payments for tuition or medical expenses on behalf of another
individual (IRC Section 2503(e)). In addition, there is also a special exclusion from the gift
tax for contributions to qualified tuition programs (IRC Section 529).
20 For a fuller explanation of the gift tax provisions of EGTRRA, see 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-10
and gift tax rate would return to 55% for gifts and bequests combined of over $3
million (with a 5% surtax over the $10.0 million to $17.184 million range).
Modified Carryover Basis at Death for Capital Gains Purposes.
Under the law in place through 2009, and scheduled to resume in 2011, a step-up in
basis
rule applies to assets transferred at death.21 Under this rule the cost basis of an
asset is set at the value of the asset on the decedent’s date of death.22 If the heir sells
the asset, his or her capital gain is calculated as the difference between the sales price
and the stepped-up basis, not the decedent’s original purchase price (called the
carryover basis). The effect of this practice is to permanently forgive the income tax
liability on the increase in value of the asset (the capital gain) during the decedent’s
period of ownership.23
The estate tax is sometimes defended as a substitute for the capital gains tax at
death.24 Consistent with this argument, an important tradeoff that EGTRRA made
for the repeal of the estate tax in 2010 was the return to a carryover basis for assets
transferred at death.25 However, two important exceptions were made. In what is
called a modified carryover basis, a step-up of $1.3 million in the aggregate per
decedent26 is permitted in the original adjusted basis of assets transferred at death
($60,000 for nonresident aliens). An additional step-up of up to $3 million is
permitted for assets transferred to a surviving spouse. (These dollar amounts are
indexed for inflation.27 ) The executor of the estate is left with the task of allocating
the step-up allowance to specific assets.
Note that these figures apply to the net increase in value of the assets, not the
gross value of the assets. Thus, the $1.3 million step-up might cover all the gains in
a gross estate valued at $2-to-$3 million or more. The spousal step-up of $3 million
21 Section 1014 of the Internal Revenue Code, relating to the basis of property acquired from
a decedent.
22 Or, the value may be determined as of the alternate valuation date, six months after the
date of death, if that value is lower.
23 For an asset that has decreased in value since the decedent purchased it, such as an
automobile, or stocks or real estate after a decline in the market, the stepped-up basis can
be lower than the original cost. As a consequence of the step-up in basis rule, the loss in
value during the decedent’s period or ownership cannot be claimed as a capital loss when
an inherited asset is sold.
24 For a discussion of this tradeoff, written prior to the enactment of EGTRRA, see CRS
Report RL30875, Step-Up vs. Carryover Basis for Capital Gains: Implications for Estate
Tax Repeal
, by Nonna A. Noto.
25 For property acquired from someone dying after December 31, 2009, the basis for the
person acquiring the property is to be the lesser of (A) the adjusted basis of the decedent,
or (B) the fair market value of the property at the date of the decedent’s death. Under both
prior law and EGTRRA, property transferred by gift has a carryover basis.
26 This limit may be increased by the amount of unused built-in losses and loss carryovers
that the decedent may have had.
27 The minimum increments are $100,000 for the $1.3 million amount, $6,000 for the
$60,000 amount, and $250,000 for the $3 million amount.

CRS-11
alone could cover the gains in an estate with a gross value of $4 million to $5
million. In short, the practical effect of these two exceptions to carryover basis is to
maintain a step-up in basis for smaller estates.
If the sunset provision were repealed with respect to Title V of EGTRRA, then
the modified carryover basis rules introduced by EGTRRA would continue in effect
after 2010 when the estate tax is permanently repealed. This would occur under
companion bills H.R. 8 (Hulshof) and S. 420 (Kyl and Bill Nelson), H.R. 183 (Pitts),
and S. 7 (Kyl). S. 988 (Sessions) would implement the modified carryover basis
rules beginning in 2005 and S.Amdt. 849 (Frist) to H.R. 6 beginning in 2006.
However, if EGTRRA is permitted to sunset, then the tax law would revert to the
step-up in basis rules found in Subtitle A, Section 1012 of the Internal Revenue
Code. The return to step-up in basis would also hold if the estate tax were
permanently repealed by repealing Subtitle B of the Internal Revenue Code, with no
accompanying changes in the basis rules, as proposed by H.R. 64 (Cox) and
companion bills H.R. 25 (Linder), S. 25 (Chambliss), and S. 1099 (Shelby).
A previous effort to institute a carryover basis was enacted by the Tax Reform
Act of 1976.28 Its implementation was postponed by three years by the Revenue Act
of 1978.29 It was repealed before it ever took effect by the Crude Oil Windfall Profit
Tax Act of 1980.30, 31 Leading up to the repeal, tax practitioners at the time pointed
out the difficulties in trying to determine the historical cost basis of an inherited
asset.
Extending All of the Major Tax Cuts Made in 2001 and 2003
The Bush Administration’s budget for FY2007 has once again proposed making
permanent all of the major tax cuts enacted in 2001 and 2003. Repealing the estate
tax and modifying the gift tax was just one of the tax cuts enacted by EGTRRA in
2001. Thus, permanent repeal of the estate tax could be part of a broader bill to make
other tax cuts permanent.
One example in the 109th Congress is S. 7 (Kyl). S. 7 would repeal the sunset
provision of EGTRRA with respect to Title V, the estate, gift, and generation-
skipping transfer tax provisions. S. 7 would also repeal the sunset provision of
EGTRRA with respect to Title I relating to the reduction of income tax rates for
individuals. (This includes the creation of the lowest 10% bracket and the reduction
of the highest marginal tax rates.) In addition, S. 7 would repeal the sunset provision
of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27) relating
to the reductions in the income tax rates on capital gains and dividends for
individuals, scheduled to sunset at the end of 2008.
28 Sec. 2005 of H.R. 10612, P.L. 94-455.
29 Sec. 515 of H.R. 13511, P.L. 95-600.
30 Sec. 401 of H.R. 39319, P.L. 96-233.
31 See CRS Report 95-444, A History of Federal Estate, Gift, and Generation-Skipping
Taxes
, by John R. Luckey.

CRS-12
A bill to make other tax cuts permanent as well would have a larger projected
revenue cost than a bill targeted solely on making the repeal of the estate tax
permanent. Both the Treasury Department and the Joint Committee on Taxation
(JCT) have estimated the effect of the Bush Administration’s proposals on receipts
over the 10-year period FY2007-FY2016. The estimated cost over the next 10 fiscal
years of making permanent a wide range of tax cuts enacted in 2001 and 2003 is $1.4
trillion dollars according to Treasury and $1.6 trillion according to JCT. Of that total
revenue loss, $339 billion or 24% according to Treasury and $369 billion or 23%
according to JCT was attributed to making permanent the repeal of the estate and
generation-skipping transfer taxes and the modification of the gift tax. Another $203
billion or 14% according to Treasury and $197 billion or 12% according to JCT came
from permanently reducing the tax rates on dividends and capital gains. Another
$606 billion or 43% according to Treasury32 and $757 billion or 47% according to
JCT33 was attributed to making permanent the reductions in marginal individual
income tax rates, also enacted in 2001.
Part of Fundamental Tax Reform
Several of the bills introduced in the 108th Congress to implement fundamental
tax reform would have repealed the estate and gift taxes, along with individual and
corporate income taxes (and in some cases payroll taxes or certain excise taxes as
well), and replaced them with other taxes. These other new taxes generally took the
form of a broad-based tax on consumption, such as a value-added tax (VAT), a
national retail sales tax, a consumed-income tax, or a flat tax on consumption. Some
took the form of a tax on earned (labor) income but not on unearned (investment)
income. Some, described as a modified VAT, combined a tax on wages with a cash-
flow tax on businesses. The intent of these proposals is to favor savings and
investment relative to consumption.34
Repealing estate and gift taxes is theoretically consistent with a consumption-
based tax system. Under such a system, bequests and gifts would be taxed not when
transferred or received, but only when the proceeds were spent by recipients.
In the 109th Congress, the companion bills H.R. 25 (Linder) and S. 25
(Chambliss) offer a fundamental tax reform package. They would repeal the estate
and gift taxes, along with the individual and corporate income taxes, payroll taxes,
32 U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal
Year 2007 Revenue Proposals
(referred to as the Bluebook), Washington, February 2006,
p. 143. Percentages calculated by CRS.
33 U.S. Congress, Joint Committee on Taxation, Description of Revenue Provisions
Contained in the President’s Fiscal Year 2007 Budget Proposal
, 109th Cong., 2nd sess.,
JCS-1-06, March 2006, p. 314. The JCT cumulative totals have been adjusted by CRS to
begin in FY2007 instead of FY2006. Percentages calculated by CRS.
34 For more information on these proposals, see CRS Issue Brief IB95060, Flat Tax
Proposals and Fundamental Tax Reform: An Overview
, by James M. Bickley.

CRS-13
and taxes on self-employment income.35 They would replace these taxes with a
national sales tax. H.R. 25, and S. 25 would repeal the estate and gift taxes by
repealing Subtitle B of the Internal Revenue Code. They also include a finding that
the sixteenth amendment to the U.S. Constitution, which permits Congress to levy
income taxes without apportionment among the states, should be repealed.
H.R. 1040 (Burgess) would offer each individual and business taxpayer the
opportunity to irrevocably elect to be taxed under a flat rate income tax, instead of
the regular income tax and alternative minimum tax. The tax rate would be 19% for
the first two years, and 17% in subsequent years. S. 812 (Specter) would replace the
current income tax with a flat tax of 20% on the taxable earned income of individuals
and business taxable income. S. 1099 (Shelby) would levy a flat tax on individuals
and businesses of 19% for 2006 and 2007, and 17% in 2008 and thereafter. All three
of these flat tax bills would repeal the estate, gift, and generation-skipping transfer
taxes by repealing Subtitle B of the Internal Revenue Code.
H.J.Res. 14 (Paul) proposes amendment to the Constitution to deny Congress
the power to levy personal income, estate, and gift taxes. It would also prohibit the
U.S. Government from engaging in business in competition with its citizens. It
would repeal the sixteenth amendment to the Constitution. It does not propose an
alternative revenue source.
When Permanent Repeal Would Take Effect
Under most of the bills that would remove the sunset provision with respect to
Title V of EGTRRA, the repeal of the estate and generation-skipping transfer taxes
would first take effect in 2010, as scheduled by EGTRRA. These bills would simply
extend the repeal for the years 2011 and beyond. These include companion bills
H.R. 8 (Hulshof) and S. 420 (Kyl and Bill Nelson), H.R. 183 (Pitts), and S. 7 (Kyl).
In contrast, S. 988 (Sessions) would accelerate the repeal to 2005. S.Amdt. 849
(Frist) to H.R. 6 would accelerate the repeal to 2006.
The bills that would repeal Subtitle B of the Internal Revenue Code (Estate and
Gift Taxes), would take effect earlier. H.R. 64 (Cox) would take effect January 1,
2005. H.R. 1040 (Burgess), S. 812 (Specter), and S. 1099 (Shelby) all proposing a
flat rate income tax, would take effect January 1, 2006. H.R. 25 (Linder) and S. 25
(Chambliss), proposing a national sales tax in place of the income, estate and gift,
and payroll taxes, would take effect January 1, 2007.
H.J.Res. 14 (Paul), proposing a Constitutional amendment to abolish the income
and estate and gift taxes, would not take effect until after 2011. It would allow up
to seven years for three-quarters of the state legislatures to ratify the amendment after
its submission, and an additional three years after ratification for the changes to take
effect.
35 The taxes on self-employment income correspond to the combined employer and
employee share of payroll taxes for old-age, survivors, and disability insurance plus hospital
insurance (OASDHI).

CRS-14
Bills to Retain but Alter the Estate Tax
Six of the bills that would retain but alter the estate tax were introduced in the
House on April 12 and 13, 2005. April 13 was the day that the House was scheduled
to vote on H.R. 8, a bill to permanently repeal the estate tax. The language of H.R.
1577 was introduced as H.Amdt. 69, the Pomeroy substitute amendment to H.R. 8,
offered on April 13, 2005, but defeated.
Four bills share some common elements. H.R. 1560 (Ford), H.R. 1568 (Leach),
H.R. 1574 (Dennis Moore), and H.R. 1577 (Pomeroy). All four would repeal
EGTRRA’s repeal of the estate tax and generation skipping transfer tax. They would
repeal the modified carryover basis introduced by EGTRRA for determining the cost
basis of assets transferred at death after 2009 and would restore the step-up in basis
treatment (value at the time of death). They would also repeal EGTRRA’s reduction
in the maximum gift tax rate to 35% and the provision making certain transfers in
trust a taxable gift, both scheduled to take effect in 2010.
The bills differ on the level at which they would set the applicable exclusion
amount per decedent, when this would take effect, and whether or not it would be
indexed for inflation. H.R. 1614 (Lowey) would set the applicable exclusion amount
at $3 million, indexed for inflation, effective upon enactment. H.R. 1557 (H.Amdt.
69 to H.R. 8) (Pomeroy) would increase the applicable exclusion amount to $3
million for 2006 through 2008 and $3.5 million for 2009 and thereafter. H.R. 1574
(Dennis Moore) would increase the applicable exclusion amount to $3.5 million in
2006, indexed for inflation. H.R. 1560 (Ford) would increase the applicable
exclusion amount to $7.5 million in 2006. H.R. 1568 (Leach) would increase the
applicable exclusion amount to $10 million upon enactment, indexed for inflation.
H.R. 1568 would also increase the annual gift tax exclusion (per donor per donee)
from $10,000 to $50,000, indexed for inflation.
The bills also differ on the estate tax rate. Two of the bills would replace the
table of increasing marginal tax rates with a flat tax rate. H.R. 1560 (Ford) would set
the estate tax at a flat rate of 27.5%. H.R. 1568 (Leach) would set a flat tax of 30%
on taxable estates and gifts. H.R. 1614 (Lowey) would reduce the marginal estate tax
rates by 20%.
H.R. 1577 (H.Amdt. 69 to H.R. 8) (Pomeroy) would freeze the maximum estate
and gift tax rate at 47%, its 2005 level. (Under EGTRRA, the maximum tax rate is
scheduled to fall to 45% in 2007 through 2009.) It would restore the 5% surtax on
taxable estate values over $10 million, up to the level needed to phase out the value
of the graduated estate tax rates and the unified credit. It would also limit the ability
to use minority discounts in determining the value of certain nonbusiness assets and
to count those assets in determining the value of an interest.
Three bills would target benefits to family-owned business and/or farms. H.R.
1624 (Mike Thompson) would provide an unlimited exclusion from the estate tax for
qualified family-owned business interests but would apply a carryover basis to those
assets when sold by the heirs. S. 928 (Lincoln) also would provide an unlimited
exclusion from the taxable estate for family-owned farms and businesses but would
apply a carryover basis to the assets when sold by the heirs. H.R. 3523 (Timothy

CRS-15
Bishop) would exclude from estate taxes the value of farmland as long as the land
continues in farmland use by a qualified heir. It would also repeal the dollar limit on
the estate tax exclusion for land subject to a qualified conservation easement
($500,000 for deaths in 2002 and after).
A Possible Bipartisan Compromise. Senators Jon Kyl (R-Ariz.) and Max
Baucus (D-Mont.), members of the Senate Finance Committee, have been meeting
since early June 2005, trying to develop a bipartisan compromise that would retain
but alter the estate tax. Their proposal would reportedly raise the applicable
exclusion amount and lower the tax rate, possibly down to the rate that applies to
dividends and capital gains. (The tax on capital gains currently has a maximum rate
of 15%, but is scheduled to revert to 20% after 2008. There are proposals to reduce
the capital gains tax rate to zero.) Early versions of the Kyl-Baucus proposal had an
exclusion amount as high as $8 million or $10 million per decedent (twice as much
per couple). Subsequent versions had an exclusion amount of $3.5 million per
decedent, indexed for inflation. Inherited assets would continue to receive a step-up
in basis to the value at the date of death, in contrast to a carryover basis.36
On April 4, 2006, Senator Charles Grassley, chairman of the Senate Finance
Committee, reportedly said that he was working with Senators Kyl and Baucus on a
proposal that would involve an exclusion amount of between $3.5 million and $5
million per decedent and a tax rate of between 15% and 35%.37 (Those are currently
the maximum tax rates on capital gains and ordinary income, respectively.) Critics
have pointed out that lowering the tax rate from 45% to 15% on taxable estates over
$3.5 million would make the compromise reform cost 75% as much in foregone
revenues as total repeal of the estate tax.38
In late April, Senate Majority Leader William Frist promised to bring full estate
tax repeal up for a Senate vote in May 2006. On May 2, 2006, Senator Kyl
announced a proposal with a $5 million per spouse exemption amount and an estate
tax rate of 15%, the current maximum tax rate on capital gains. Senator Kyl
cautioned that Senate action on the estate tax might be delayed until June.39
Bills Introduced in the 109th Congress
All of the bills introduced in the 109th Congress to permanently repeal the estate
tax have been introduced by Republican Members of Congress. Those cases where
there is a Democratic co-sponsor are noted in the summaries below. Of the six
36 Dustin Stamper, “Framework of Estate Tax Deal is Set, Kyl Says,” Tax Notes by Tax
Analysts, July 18, 2005, p. 263.
37 “Hill Watch Annotated Source,” Daily Tax Report, no. 78, Apr. 24, 2006, p. GG-1.
38 Kurt Ritterpusch, “Durbin, Others Criticize Revenue Drain Under Reform Deal Proposed
by GOP’s Kyl,” Daily Tax Report by BNA, Inc., no. 169, Sept. 1, 2005, p. G-1.
39 Kurt Ritterpusch, “Kyl Says Vote Could Slip to June, Sets $5 million, 15 Percent as
Fallback,” Daily Tax Report by BNA, Inc., no. 85, May 3, 2006, p. G-1.

CRS-16
House bills to retain but alter the estate tax, five were introduced by Democratic
Members and one (H.R. 1568) by a Republican Member.
House
H.R. 8 (Hulshof) — Action in the House of Representatives. Death Tax
Repeal Permanency Act of 2005. H.R. 8 would repeal the sunset provision of
EGTRRA solely with respect to the estate, gift, and generation-skipping transfer tax
provisions (Title V). This would make the repeal of the estate and generation-
skipping transfer taxes permanent starting in 2010. It would leave in place the
modified gift tax and the modified carryover basis for assets transferred at death
instituted by EGTRRA. The Joint Committee on Taxation estimated that H.R. 8
would cost $290 billion in lost revenues over the fiscal years 2006-2015 (JCX-20-05,
April 13, 2005). (See the numbers reported in the right-hand column of Table 1
earlier in this report.) Introduced February 17, 2005; referred to the Committee on
Ways and Means. Passed by a vote of 272-162 on April 13, 2005. Companion to S.
420. As of April 13, 2005, H.R. 8 had 206 co-sponsors, including 16 Democrats.
The bill continues the precedent, begun by Representative Jennifer Dunn in
1999 in the 106th Congress, of using H.R. 8 as the number for a bill to permanently
repeal the estate and generation-skipping transfer taxes. H.R. 8, the Death Tax
Elimination Act of 2000, was passed by the 106th Congress but vetoed by President
Clinton on August 31, 2000. H.R. 8 (Dunn and Tanner), the Death Tax Elimination
Act of 2001, was reintroduced in the 107th Congress, substantially amended by the
Ways and Means Committee, and passed by the House on April 4, 2001. Many of
its provisions were included in EGTRRA (P.L. 107-16), enacted on June 7, 2001.
In the 108th Congress, H.R. 8 (Dunn), the Death Tax Repeal Permanency Act of
2003, was passed by the House on June 18, 2003.
H.Res. 202 (Rules Committee). Provided for the consideration of H.R. 8 with
one hour of debate. Also provided for the consideration of the amendment in the
nature of a substitute, if offered by Representative Pomeroy, with one hour of debate.
Introduced April 12, 2005. Agreed to by voice vote April 13, 2005. House Calendar
No. 20, H.Res. 202, 109th Cong., 1st sess., H.Rept. 109-35, April 12, 2005. Some
Democrats sought to defeat the rule in order to offer an amendment that would have
directed the savings from the Pomeroy substitute compared with H.R. 8 ($218
billion) to strengthen Social Security.
H.Amdt. 69 (Pomeroy) to H.R. 8. Certain and Immediate Estate Tax Relief
Act of 2005. Identical to H.R. 1577. H.Amdt. 69 was an amendment in the nature
of a substitute to H.R. 8. The Pomeroy substitute amendment would repeal
EGTRRA’s repeal of the estate tax and generation skipping transfer tax. It would
raise the applicable exclusion amount to $3 million per decedent, effective January
1, 2006, through December 31, 2008. The exclusion would rise to $3.5 million per
decedent in 2009, and remained at that level thereafter. The amendment would
freeze the maximum estate tax rate at 47%, its 2005 level. It would restore the 5%
surtax on taxable estate values over $10 million, up to the level needed to phase out
the value of the graduated estate tax rates and the unified credit. It would repeal the
modified carryover basis enacted by EGTRRA, and restore the step-up in basis rules
(value at the time of death) for determining the cost basis of assets transferred at

CRS-17
death after 2009. It would repeal EGTRRA’s reduction of the maximum gift tax rate
to 35% and the provision making certain transfers in trust a taxable gift, also
scheduled to take effect after 2009. The preceding provisions would all take effect
January 1, 2006. The amendment also would limit the ability to use minority
discounts in determining the value of certain nonbusiness assets and to count those
assets in determining the value of an interest. This provision would take effect upon
enactment. The Joint Committee on Taxation estimated that the amendment would
cost $72 billion in lost revenues over the ten fiscal years 2006-2015.40 Defeated by
a vote of 194-238 (Roll no. 101) on April 13, 2005. Representative Pomeroy had
offered a similar substitute amendment in the 108th Congress (H.Amdt. 171 to H.R.
8).
H.R. 8 (Hulshof) — Action in the Senate. Senator Frist planned to have the
Senate vote on permanent estate tax repeal before it recessed at the end of July 2005.
On July 29, 2005, Senator Frist filed a motion to proceed on H.R. 8 and a cloture
motion on the motion to proceed, but he then withdrew the motion to proceed.41
Senator Frist next proposed that the Senate take up the matter on September 6, 2005,
the day it was originally scheduled to reconvene after the August recess. On
September 6, however, Senator Frist canceled a scheduled cloture vote on a motion
to proceed to consider H.R. 842 because Congress was in the midst of dealing with
the damage to New Orleans and the Gulf Coast brought about by Hurricane Katrina.43
H.R. 8 was returned to the Senate calendar on September 7, 2005.
H.R. 25 (Linder). Fair Tax Act of 2005. H.R. 25 would repeal the estate and
gift taxes along with the corporate and individual income taxes, payroll taxes, and
taxes on self-employment income. In their place it would institute a national sales
tax, to be administered primarily by the states. It would repeal Subtitle B of the
Internal Revenue Code. It contains a finding that the 16th amendment to the U.S.
40 U.S. Congress, Joint Committee on Taxation, Estimated Revenue Effects of an Amendment
in the Nature of a Substitute Offered by Mr. Pomeroy to H.R. 8, the “Death Tax Repeal
Permanency Act of 2005,” Scheduled for Consideration by the House of Representatives on
April 13, 2005
, 109th Cong., 1st sess., JCX-21-05, Apr. 13, 2005.
41 The chronicle of the bill is available online from Library of Congress, Congressional
Research Service, Legislative Information Service (LIS) under: 109th Congress, H.R. 8, All
Except Bill Text, Bill Summary and Status for the 109th Congress.
42 A motion to proceed to consideration of H.R. 8 would be a debatable motion in the Senate
and, thus, potentially subject to a filibuster. The Senate can prevent (or end) a filibuster, and
limit consideration of a debatable question, by invoking cloture. This requires a vote of
three-fifths of the Senate. H.R. 8 would also potentially be subject to a filibuster, as it is a
debatable question as well. If cloture were invoked (on either the motion to proceed or the
bill), a subsequent majority vote of the Senate would be required for passage. If repeal of
the estate tax were included as part of a reconciliation measure, it would not be potentially
subject to a filibuster, but would instead be subject to the rules pertaining to the
consideration of reconciliation measures. For more on this, see CRS Report RL33030, The
Budget Reconciliation Process: House and Senate Procedures
, by Robert Keith and Bill
Heniff, Jr.
43 Kurt Ritterpusch, “Frist Pulls Vote on Estate Tax Repeal; Others Express Uncertainty
Over Measure,” Daily Tax Report by BNA, Inc., no. 172, Sept. 7, 2005, p. G-1.

CRS-18
Constitution should be repealed Would take effect January 1, 2007. Introduced
January 4, 2005; referred to the Committee on Ways and Means. Companion bill to
S. 25. A similar bill, also numbered H.R. 25, was introduced by Representative
Linder in January 2003, at the outset of the 108th Congress.
H.R. 64 (Cox). Family Heritage Preservation Act. H.R. 64 would repeal
Subtitle B of the Internal Revenue Code of 1986. This would repeal the estate tax,
the generation-skipping transfer tax, and the gift tax. It would repeal other changes
made by EGTRRA to the taxation of bequests and gifts such as the modified
carryover basis for assets transferred at death and the modified gift tax. The repeal
would take effect as of January 1, 2005. The bill lists six findings of Congress
opposing the taxes to be repealed. Introduced January 4, 2005; referred to the
Committee on Ways and Means. As of April 14, 2005, H.R. 64 had 160 co-sponsors,
including four Democrats.
H.R. 183 (Pitts). H.R. 183 would repeal the sunset provision of EGTRRA
solely with respect to the estate, gift, and generation-skipping transfer tax provisions
(Title V). This would make the repeal of the estate and generation-skipping transfer
taxes permanent starting in 2010. It would leave in place the modified gift tax and
the modified carryover basis for assets transferred at death and other changes made
to the gift tax by EGTRRA. Introduced January 4, 2005; referred to the Committee
on Ways and Means.
H.R. 1040 (Burgess). Freedom Flat Tax Act. H.R. 1040 would permanently
repeal the estate, gift and generation-skipping transfer taxes by repealing Subtitle B
of the Internal Revenue Code. Would take effect January 1, 2006. H.R. 1040 would
also offer individuals and persons engaged in business activities the chance to make
an irrevocable election to be subject to a flat tax instead of the regular income tax and
alternative minimum tax. For individuals, taxable income would include the sum of
cash wages, retirement distributions, and unemployment compensation, minus a basic
standard deduction and an additional standard deduction (akin to a personal
exemption) for each dependent. For-profit businesses would be taxed on gross
receipts minus deductions for wages, retirement contributions, and business inputs.
Tax-exempt and governmental organizations would pay a tax on the on the noncash
compensation provided to their employees. The flat tax would be levied at a rate of
19% for the first two years after its election by the taxpayer, and 17% for subsequent
years. Introduced March 2, 2005; referred to the Committee on Ways and Means.
One of the four original co-sponsors is a Democrat.
H.R. 1560 (Ford). H.R. 1560 would repeal EGTRRA’s repeal of the estate tax
and generation skipping transfer tax. It would increase the applicable exclusion
amount to $7.5 million. The estate tax would be set at a flat rate of 27.5%. The bill
would repeal EGTRRA’s modified carryover basis provisions and reduction of the
maximum gift tax rate to 35% after 2009. It would repeal the EGTRRA provision
making certain transfers in trust a taxable gift after 2009. The bill would take effect
January 1, 2006. Introduced April 12, 2005; referred to the Committee on Ways and
Means.
H.R. 1568 (Leach). H.R. 1568 would repeal EGTRRA’s repeal of the estate
tax and generation skipping transfer tax. It would raise the applicable exclusion

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amount to $10 million, indexed for inflation. It would replace the tables of
increasing marginal tax rates with a flat tax of 30% on taxable estates and gifts. It
would apply the 30% rate and an increase in the unified credit to the estates of
nonresidents who are not citizens. It would repeal the modified carryover basis
provisions of EGTRRA and the reduction of the maximum gift tax rate to 35% in
2010. It would repeal the EGTRRA provision making certain transfers in trust a
taxable gift after 2009. These parts of the bill would take effect after the date of
enactment. H.R. 1568 also would increase the annual gift tax exclusion (from
$10,000) to $50,000, indexed for inflation. This would apply to gifts made after
December 31, 2004. Introduced April 12, 2005; referred to the Committee on Ways
and Means.
H.R. 1574 (Dennis Moore). H.R. 1574 would repeal EGTRRA’s repeal of the
estate tax and generation skipping transfer tax. It would increase the applicable
exclusion amount to $3.5 million, indexed for inflation. It would also repeal
EGTRRA’s modified carryover basis provisions, reduction of the maximum gift tax
rate to 35%, and provision making certain transfers in trust a taxable gift, all
scheduled to take effect in 2010. The bill would take effect January 1, 2006.
Introduced April 12, 2005; referred to the Committee on Ways and Means.
H.R. 1577 (Pomeroy). Certain and Immediate Estate Tax Relief Act of 2005.
Identical to the Pomeroy substitute amendment to H.R. 8, H.Amdt. 69. H.R. 1577
would repeal EGTRRA’s repeal of the estate tax and generation skipping transfer tax.
It would raise the applicable exclusion amount to $3 million per decedent, effective
January 1, 2006, through December 31, 2008. The exclusion would rise to $3.5
million per decedent in 2009, and remain at that level thereafter. The maximum
estate tax rate would be frozen at 47%, its 2005 level. The bill would restore the 5%
surtax on taxable estate values over $10 million, up to the level needed to phase out
the value of the graduated estate tax rates and the unified credit. It would repeal the
modified carryover basis for determining the cost basis of assets transferred at death,
the reduction of the maximum gift tax rate to 35%, and the provision making certain
transfers in trust a taxable gift, all scheduled to take effect in 2010 under EGTRRA.
The preceding provisions would take effect January 1, 2006. The bill also would
limit the ability to use minority discounts in determining the value of certain
nonbusiness assets and to count those assets in determining the value of an interest.
This provision would take effect upon enactment. The Joint Committee on Taxation
estimated that the identical Pomeroy substitute amendment to H.R. 8 would cost $72
billion in lost revenues over the ten fiscal years 2006-2015 (JCX-21-05, April 13,
2005). Introduced April 12, 2005; referred to the Committee on Ways and Means.
H.R. 1614 (Lowey). Estate Tax Reduction Act of 2005. H.R. 1614 would
reduce the graduated marginal estate tax rates by 20% each. This would leave a
maximum estate tax rate of 39.2% on taxable amounts over $2 million. The
applicable exclusion amount would be set at $3 million, indexed for inflation. The
provisions would take effect upon enactment. Introduced April 13, 2005; referred
to the Committee on Ways and Means.
H.R. 1624 (Mike Thompson). Estate Tax Repeal for Family-Owned Farms
and Businesses Act of 2005. H.R. 1624 would strike from the Internal Revenue
Code Section 2057 which provided a special deduction for qualified family-owned

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business interests (QFOBI), such that the deduction and applicable exclusion amount
totaled $1.3 million. It would introduce a new section, 2059, which would allow an
unlimited deduction from the gross estate for qualified family-owned business
interests. These assets would be subject to carryover basis rules when sold by an
heir. Qualified spousal property could still receive the aggregate spousal property
basis increase of up to $3 million. A decedent would be treated as engaged in a trade
or business if any member of the decedent’s family is engaged in the trade or
business. A qualified heir could include an active employee of the trade or business
who was employed by the trade or business for at least 10 years before the decedent’s
death. The provisions would apply to the estates of decedents dying and gifts made
from 2006 through 2009, and after 2011 (after EGTRRA sunsets). Introduced April
13, 2005; referred to the Committee on Ways and Means.
H.R. 3523 (Timothy Bishop). Estate Tax Deferral for Working Farms and
Land Conservation Act of 2005. H.R. 3253 would exclude from estate taxes the
value of farmland as long as the land continues in farmland use by a qualified heir.
The bill would also repeal the dollar limit on the estate tax exclusion for land subject
to a qualified conservation easement ($500,000 for deaths in 2002 and after).
Introduced July 28, 2005; referred to the Committee on Ways and Means.
H.J.Res. 14 (Paul). H.J.Res. 14 proposes an amendment to the U.S.
Constitution that would deny Congress the power to levy personal income, estate,
and gift taxes. The amendment would prohibit the United States Government from
engaging in business in competition with its citizens. It would repeal the sixteenth
amendment to the Constitution (which grants Congress the power to levy taxes on
incomes without apportionment among the states). Introduced January 26, 2005;
referred to the Committee on the Judiciary.
Senate
H.R. 8 (Hulshof). Death Tax Repeal Permanency Act of 2005. Received in the
Senate on April 14, 2005, after passage in the House on April 13. For further
information about action on H.R. 8 in the Senate, see the end of the preceding
discussion of H.R. 8 in the House portion of this section.
S. 7 (Kyl). Jobs and Growth Tax Relief Act of 2005. Also known as the
Permanent Tax Cuts bill. S. 7 would repeal the sunset provision of EGTRRA with
respect to Title V, the estate, gift, and generation-skipping transfer tax provisions.
This would make the repeal of the estate and generation-skipping transfer taxes
permanent starting in 2010. S. 7 would also repeal the sunset provision of EGTRRA
with respect to Title I relating to the reduction of income tax rates for individuals.
This includes the creation of the 10% bracket and the reduction of the highest
marginal tax rates. In addition, S. 7 would repeal the sunset provision of the Jobs and
Growth Tax Relief Reconciliation Act of 2003 (P.L. 108-27) relating to the
reductions in the income tax rates on capital gains and dividends for individuals.
Introduced January 24, 2005; referred to the Committee on Finance.
S. 25 (Chambliss). Fair Tax Act of 2005. H.R. 25 would repeal the estate and
gift taxes along with individual and corporate income taxes, payroll taxes, and taxes
on self-employment income. In their place it would institute a national sales tax, to

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be administered primarily by the states. Would repeal Subtitle B of the Internal
Revenue Code. Contains a finding that the 16th amendment to the U.S. Constitution
should be repealed. Would take effect January 1, 2007. Introduced January 24,
2005; referred to the Committee on Finance. Companion to H.R. 25. A similar bill,
S. 1493, was introduced by Senator Chambliss in the 108th Congress.
S. 420 (Kyl). Death Tax Repeal Permanency Act of 2005. Identical to H.R. 8.
S. 420 would repeal the sunset provision of EGTRRA solely with respect to the
estate, gift, and generation-skipping transfer tax provisions (Title V). This would
make the repeal of the estate and generation-skipping transfer taxes permanent
starting in 2010. It would leave in place the modified gift tax and the modified
carryover basis for assets transferred at death as provided by EGTRRA. Introduced
February 17, 2005 on a bipartisan basis with Senator Bill Nelson (D-FL);44 referred
to the Committee on Finance.
S. 812 (Specter). Flat Tax Act of 2005. S. 812 would repeal Subtitle B of the
Internal Revenue Code, thereby repealing the estate, gift, and generation-skipping
transfer taxes, effective January 1, 2006. It would replace the current income tax
with a flat tax of 20% on taxable earned income of individuals and business taxable
income. Introduced April 15, 2005; referred to the Committee on Finance.
S. 928 (Lincoln). Estate Tax Repeal Acceleration (ExTRA) for Family-Owned
Businesses and Farms Act. S. 928 would immediately and permanently repeal the
estate tax on family-owned businesses and farms. A carryover basis interest (COBI)
is defined as any interest in a trade or business, with a principal place of business in
the U.S., that is substantially owned by one, two, or three families. There would be
no estate tax on a COBI. But the basis for the person acquiring the property from the
decedent would be the carryover (not step-up) basis — the lesser of the adjusted basis
of the decedent or the fair market value of the property at the date of the decedent’s
death. Consequently, the heirs would likely be subject to capital gains taxes if they
sold the business.
An unlimited portion of a decedent’s estate could be treated as a COBI. The
COBI would also be eligible for an unlimited marital deduction. To qualify, the
decedent or a member of the decedent’s family must own and materially participate
in the trade or business for five out of the eight years ending on the date of the
decedent’s death. If the member of the decedent’s family is the spouse, then the
participation requirement is met under the active management standard. A qualified
heir includes an active employee of the trade or business who has been employed by
the trade or business for at least 10 years before the decedent’s death. The proposal
would take effect after the date of enactment and before January 1, 2010, and then
again after December 31, 2010. In 2010, the one year the estate tax is repealed, the
COBI would be eligible for the $3 million property basis increase available to
surviving spouses, plus the aggregate $1.3 million basis increase for any heirs, under
EGTRRA’s modified carryover basis rules. Introduced April 27, 2005; referred to
the Committee on Finance.
44 See Sen. Jon Kyl and Sen. Bill Nelson, statements accompanying the introduction of S.
420, Congressional Record, daily edition, vol. 151, no. 18, Feb. 17, 2005, pp. S1633-S1634.

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S. 988 (Sessions). Jobs Protection and Estate Tax Reform Act of 2005. S. 988
would accelerate to 2005 the changes to the estate, gift, and generation skipping
transfer taxes that are scheduled to take effect in 2010 under EGTRRA. Effective
retroactively to January 1, 2005, it would repeal the estate and generation skipping
transfer taxes, modify the gift tax, and introduce the modified carryover basis for
assets transferred at death. It would make these changes permanent by repealing the
sunset provision of EGTRRA solely with respect to the estate and gift tax provisions
of that act. Introduced May 10, 2005; referred to the Committee on Finance.
S. 1099 (Shelby). Tax Simplification Act of 2005. S. 1099 would permanently
repeal the estate, gift and generation-skipping transfer taxes by repealing Subtitle B
of the Internal Revenue Code effective January 1, 2006. S. 1099 would also replace
the current income tax on individuals and businesses with a flat tax levied at a rate
of 19% in 2006 and 2007, and 17% in 2008 and thereafter. For individuals, taxable
income would include the sum of cash wages, retirement distributions, and
unemployment compensation, minus a basic standard deduction and an additional
standard deduction (akin to a personal exemption) for each dependent. The taxable
income of any dependent child under age 14 would be included in the parent’s
taxable income. For-profit businesses would be taxed on gross receipts minus
deductions for business inputs, wages, and retirement contributions. Tax-exempt and
governmental organizations would pay the tax on noncash (excludable) compensation
provided to their employees. S. 1099 would simplify the rules relating to qualified
retirement plans. It would permit employer reversions of excess pension assets under
certain conditions. It would repeal the alternative minimum tax and all tax credits.
It would require a supermajority vote on any legislation that would increase or add
any federal income tax rate, reduce the standard deduction, or provide any exclusion,
deduction, credit, or other benefit which would reduce federal revenues. Introduced
May 23, 2005; referred to the Committee on Finance.
S.Amdt. 849 (Frist) to H.R. 6. This proposed amendment to the energy bill
would accelerate to 2006 the changes to the estate, gift, and generation skipping
transfer taxes that are scheduled to take effect in 2010 under EGTRRA. Effective
January 1, 2006, it would repeal the estate and generation skipping transfer taxes,
modify the gift tax, and introduce the modified carryover basis for assets transferred
at death. It would make these changes permanent by repealing the sunset provision
of EGTRRA solely with respect to the estate and gift tax provisions of that act. The
proposal was filed, but not offered, by Senate Majority Leader William Frist on June
22, 2005, as an amendment to H.R. 6, the Energy Policy Act of 2005.45
45 Sen. Frist, SA 849, Congressional Record, daily edition, vol. 151, no. 84, June 22, 2005,
pp. S7080-S7081.

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For Additional Information
CRS Report 95-444, A History of Federal Estate, Gift, and Generation-Skipping
Taxes, by John R. Luckey.
CRS Report RS20609, Economic Issues Surrounding the Estate and Gift Tax: A
Brief Summary, by Jane G. Gravelle.
CRS Report RL30600, Estate and Gift Taxes: Economic Issues, by Jane G. Gravelle
and Steven Maguire.
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 Report RL32768, Estate and Gift Tax Revenues: Several Measurements, by
Nonna A. Noto.
CRS Report RL31776, Estate Tax Legislation in the 108th Congress, by Nonna A.
Noto.
CRS Report RS21224, Estate Tax: Legislative Activity in 2002, by Nonna A. Noto.
CRS Report 95-416, Federal Estate, Gift, and Generation-Skipping Taxes: A
Description of Current Law, by John R. Luckey.
CRS Issue Brief IB95060, Flat Tax Proposals and Fundamental Tax Reform: An
Overview, by James M. Bickley.
CRS Report RL30875, Step-Up vs. Carryover Basis for Capital Gains: Implications
for Estate Tax Repeal, by Nonna A. Noto.
CRS Report RL30862, The Budget Reconciliation Process: The Senate’s “Byrd
Rule,” by Robert Keith.