Estate Tax Legislation in the 108th Congress

Estate Tax Legislation in the 108th Congress

Order Code RL31776
CRS Report for Congress
Received through the CRS Web
Estate Tax Legislation in the 108th Congress
Updated May 14, 2004
Nonna A. Noto
Specialist in Public Finance
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

Estate Tax Legislation in the 108th Congress
Summary
Under provisions of the Economic Growth and Tax Relief Reconciliation Act
of 2001 (EGTRRA, P.L. 107-16, enacted June 7, 2001), the estate tax and
generation-skipping transfer tax are scheduled to be repealed in 2010 but reinstated
in 2011. This is because all tax cut provisions of EGTRRA are scheduled to sunset
on December 31, 2010. This report tracks actions in the 108th Congress to
permanently repeal — or retain but alter — the estate tax.
On June 18, 2003, the House passed H.R. 8 (Dunn), which would make the
repeal of the estate tax permanent from 2010 onward. Prior to that vote, under
provisions of the rule (H.Res. 281), the House debated and then defeated the
Pomeroy substitute amendment (H.Amdt. 171 to H.R. 8) to retain the estate tax but
increase the exclusion amount to $3 million per decedent beginning in 2004.
Thus far in the 108th Congress, 26 measures addressing the estate tax have been
introduced, 19 in the House and 7 in the Senate. The bills can be grouped into three
categories. First, seven House bills would make the estate tax repeal permanent after
2010. Four bills would remove the sunset provision only for the estate tax provisions
of EGTRRA: H.R. 8 (Dunn), H.R. 57 (Dunn), H.R. 139 (McGinnis), and H.R. 158
(Pitts). S.J.Res. 20 (Kyl) and S.J.Res. 21 (Kyl) would express the sense of Congress
that the number of years during which the estate tax is repealed should be extended,
pending the permanent repeal of the estate tax. The revenue cost for FY2013 from
permanent repeal of the estate tax has been estimated in 2004 at $50 billion by the
U.S. Treasury Department and $55 billion by the Joint Committee on Taxation. In
addition, four bills would repeal the entire sunset provision, making all of
EGTRRA’s tax cuts permanent: H.R. 210 (Tiberi), H.R. 407 (Bonner), H.R. 1612
(Hulshof), and H.R. 3773 (Hulshof).
Second, four bills, one in the House and three introduced by Senator Kyl, would
accelerate the repeal of the estate tax sooner than the 2010 date scheduled by
EGTRRA and make the repeal permanent. H.R. 51 (Cox) would repeal the gift tax
along with the estate tax effective in 2003. S. 13 (Kyl), S. 169 (Kyl), and S. 96 (Kyl)
would accelerate the repeal of the estate tax to 2005.
Third, twelve bills, ten in the House and two in the Senate, would retain but
alter the estate tax. Some would lower the tax rate. Eight House bills would increase
the exclusion amount for all estates. This includes H.Amdt. 171 (Pomeroy) to H.R.
8, H.R. 396 (DeFazio), H.R. 2477 (Ford), H.R. 2480 (Leach), H.R. 2481 (Lowey),
H.R. 2502 (Bereuter), H.R. 2532 (Kennedy, P.), H.R. 2610 (Peterson, C.), and H.R.
2682 (Lowey). S. 135 (Dayton) would both increase the exclusion amount for all
estates and provide a complete estate tax exclusion for family-owned businesses. In
addition to S. 135, companion bills H.R. 2513 (Thompson) and S. 34 (Lincoln)
would immediately and permanently repeal the estate tax on family-owned
businesses and farms. In contrast to S. 135, which uses a step-up in basis, H.R. 2513
and S. 34 would use carryover basis to calculate the capital gain if the beneficiary
later sold the family-owned business interest. This report will be updated as events
warrant.

Contents
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Bush Administration’s Revenue Proposal for FY2004 and FY2005 . . . . . . . . . . . 2
Actions in Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Overview of Bills Introduced in the 108th Congress . . . . . . . . . . . . . . . . . . . . . . . 5
House . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
H.R. 8 (Dunn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
H.Res. 281 (Rules Committee) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
H.Amdt. 171 (Pomeroy) to H.R. 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
H.R. 51 (Cox) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
H.R. 57 (Dunn) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
H.R. 139 (McInnis) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
H.R. 158 (Pitts) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
H.R. 210 (Tiberi) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
H.R. 396 (DeFazio) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
H.R. 407 (Bonner) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
H.R. 1612 (Hulshof) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
H.R. 2477 (Ford) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
H.R. 2480 (Leach) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
H.R. 2481 (Lowey) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
H.R. 2502 (Bereuter) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
H.R. 2513 (Thompson) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
H.R. 2532 (Kennedy, P.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
H.R. 2610 (Peterson, C.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
H.R. 2682 (Lowey) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
H.R. 3773 (Hulshof) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Senate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
S. 13 (Kyl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
S. 34 (Lincoln) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
S. 96 (Kyl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
S. 135 (Dayton) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
S. 169 (Kyl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
S.J.Res. 20 (Kyl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
S.J.Res. 21 (Kyl) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
For Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Estate Tax Legislation
in the 108th Congress
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 tax cut Act, the estate tax repeal, and all other provisions of EGTRRA
(pronounced egg-tra), are scheduled to sunset as of December 31, 2010. If the sunset
provision is not repealed, in 2011 tax law would return to the law in place prior to the
enactment of EGTRRA on June 7, 2001. For the estate tax, the exclusion amount
would have risen to $1 million under prior law.1
During 2002, estate tax proposals offered by Republican Members in both
houses focused on making the repeal of the estate tax permanent. The Bush
Administration supported permanent repeal. Alternative proposals offered by
Democratic Members in the House and Senate would have retained the estate tax but
made some changes, such as making special exceptions for qualified family-owned
business interests (QFOBI) and/or accelerating an increase in the exclusion amount
for all estates.
In 2002, efforts to permanently repeal the estate tax focused on removing the
sunset provision of EGTRRA with respect to the estate tax provisions of the Act.
The estate and generation-skipping transfer taxes would thus be eliminated from
2010 onward. Other changes made by Title V of EGTRRA also would continue,
such as replacing the step-up in basis with a modified carryover basis for assets
transferred at death and retaining the gift tax on transfers made during one’s lifetime
even when the estate tax is repealed.
On April 18, 2002, the House passed H.R. 586, 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 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. On June 12, 2002, the Senate considered three
amendments offered to H.R. 8 regarding the estate tax. None of the 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 the Permanent Death
1 For additional information, 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.

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Tax Repeal Act of 2002 (H.R. 2143) before the 107th Congress adjourned. The
Senate did not act on the bill.2
Bush Administration’s Revenue Proposal for
FY2004 and FY2005
One of the revenue proposals offered by the Bush Administration in conjunction
with its FY2004 budget proposal was to “...permanently extend provisions expiring
in 2010.” That proposal would permanently extend all of the provisions of
EGTRRA, which would otherwise sunset on December 31, 2010.3 One effect of this
extension of EGTRRA would be to make the repeal of the estate tax and the
generation-skipping transfer tax permanent for 2010 and beyond.
The repeal of the sunset was not included as part of H.R. 2 (Thomas) and S. 2
(Nickles), the Jobs and Growth Tax Act of 2003, introduced on February 27, 2003.
These companion bills in the House and Senate were the initial legislative vehicles
for the economic growth package portion of the Administration’s FY2004 tax cut and
economic growth proposals. Nor did the final version of H.R. 2 (enacted May 28,
2003, as P.L. 108-27, the Jobs and Growth Tax Relief Reconciliation Act) remove
the sunset on tax provisions expiring in 2010 or include any provision regarding the
estate tax.
On June 18, 2003, the Bush Administration expressed its support for the House
to pass H.R. 8, to make the repeal of the estate tax permanent. The Administration
cited the importance of providing certainty about future estate tax law. Certainty
about repeal would reduce the cost of estate tax planning and compliance,
particularly for family-owned businesses, farms, and ranches. The Administration
urged quick congressional action to make the repeal permanent.4
In 2003, for the FY2004 budget, the estimated one-year revenue loss from
permanent repeal of the estate and generation-skipping transfer taxes, and
modification of gift taxes, was $46 billion according to the U.S. Treasury
2 For additional information, see CRS Report RS21224, Estate Tax: Legislative Activity in
2002, by Nonna A. Noto.
3 U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal
Year 2004 Revenue Proposals (referred to as the “Blue Book”), Washington, Feb. 2004,
129. U.S. Congress, Joint Committee on Taxation, Description of Revenue Provisions
Contained in the President’s Fiscal Year 2004 Budget Proposal, Joint Committee Print JCS-
7-03,108th Cong., 1st Sess., March 2003 (Washington, U.S. Govt. Print. Off., 2003), 239-41.
4 Executive Office of the President, Office of Management and Budget, Statement of
Administration Policy on H.R. 8 — Death Tax Repeal Permanency Act, Washington: June
18, 2003.

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Department5 and $64 billion according to the Joint Committee on Taxation6 for
FY2013.7
Among its revenue proposals for FY2005, the Bush Administration once again
proposed to permanently extend the provisions of EGTRRA that sunset on December
31, 2010.8 In 2004 the U.S. Treasury Department estimated a one-year revenue loss
of $50 billion for FY2013 for the repeal of estate and generation-skipping transfer
taxes and the modification of gift taxes.9 The Joint Committee on Taxation estimated
a revenue loss of $55 billion for FY2013.10
Actions in Congress
H.R. 8, the Death Tax Repeal Permanency Act of 2003, was approved by the
House on June 18, 2003. H.R. 8 would make 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. Other changes made
by Title V of EGTRRA would also continue after 2010. These changes include using
modified carryover basis (instead of step-up in basis) to calculate the capital gain
upon subsequent sale of assets transferred at death. The changes also include
retaining the gift tax and lowering the maximum gift tax rate to the maximum income
tax rate from 2010 onward.
H.R. 8 was introduced by Representative Jennifer Dunn on June 12, 2003, with
207 cosponsors.11 The bill was referred to the House Ways and Means Committee.
5 U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal
Year 2004 Revenue Proposals, 152.
6 U.S. Congress, Joint Committee on Taxation, Estimated Budget Effects of the Revenue
Provisions Contained in the President’s Fiscal Year 2004 Budget Proposal, JCX-15-03, 108th
Cong., 1st Sess., March 4, 2003, 4. The March 2003 estimate of $58 billion is close to the
Joint Committee’s estimate of $56 billion for FY2012, made in June 2002. 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.
7 FY2012 is the first full fiscal year that would reflect the extension of EGTRRA’s expiring
provisions beyond December 31, 2010.
8 U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal
Year 2005 Revenue Proposals, Washington, February 2004, 5. U.S. Congress, Joint
Committee on Taxation, Description of Revenue Provisions Contained in the President’s
Fiscal Year 2005 Budget Proposal, Joint Committee Print JCS-3-04, 108th Cong., 2nd Sess.,
February 2004 (Washington, U.S. Govt. Print. Off., 2004), 9-12.
9 U.S. Department of the Treasury, General Explanations of the Administration’s Fiscal
Year 2005 Revenue Proposals, 191.
10 U.S. Congress, Joint Committee on Taxation, Estimated Budget Effects of the Revenue
Provisions Contained in the President’s Fiscal Year 2005 Budget Proposal, JCX-14-04 R,
108th Cong., 2nd Sess., March 3, 2004, 1.
11 The bill number H.R. 8 had been reserved by the House leadership in the 108th Congress.
(continued...)

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H.R. 8 was equivalent in intent to H.R. 57, introduced by Representative Dunn on
January 7, 2003. The Joint Committee on Taxation estimated the revenue cost of
H.R. 8 to be $161.8 billion over the 11-year period FY2003-FY2013 and $63.6
billion for FY2013 alone.
On June 17, 2003, the House Rules Committee reported by voice vote H.Res.
281 (H.Rept. 108-157), the rule for consideration of H.R. 8. The bill was thus made
available for floor consideration even though the Ways and Means Committee had
not reported it in the intervening five days. The modified closed rule permitted only
one amendment, an amendment in the nature of a substitute to be offered by
Representative Earl Pomeroy or his designee.
The proposed Pomeroy substitute would retain but alter the estate tax. It would
increase the estate tax exclusion to $3 million per decedent, effective January 1,
2004. It would partially offset the cost of increasing the exclusion by freezing the
current estate and gift tax rates (with a maximum rate of 49%), limiting the ability
to claim valuation discounts of nonbusiness assets and to count those assets in the
determining the value of an interest, limiting minority discounts for interests in
family-controlled entities, and restoring the prior-law phaseout of the benefit of both
the graduated rates and the exclusion amount by reimposing a 5% surtax on estate
values above $10 million, over a limited range of values. It would repeal the
modified carryover basis rules (scheduled to take effect in 2010 when the estate tax
is to be repealed under EGTRRA); instead, it would keep the current-law step-up in
basis rules. The Joint Committee on Taxation estimated the revenue cost of the
Pomeroy amendment at $27.8 billion over the 10-year period FY2004-FY20013.12
On June 18, 2003, the House adopted the rule, H.Res. 281. The Pomeroy
amendment in the nature of a substitute was offered as H.Amdt. 171 to H.R. 8. The
Pomeroy amendment was defeated by a vote of 188-239 (Roll no. 287). H.R. 8 was
then passed by a vote of 264-163 (Roll no. 288).
H.R. 8 now awaits action by the Senate. At Senator Kyl’s request, the bill was
not referred to the Finance Committee but was placed directly on the Senate calendar.
If the Finance Committee chooses to report a bill of its own for Senate consideration,
this procedure would facilitate starting the process of resolving differences between
11 (...continued)
H.R. 8 is the same number that was given to bills introduced by Representative Dunn in the
106th and 107th Congresses. These earlier bills would have phased out and then permanently
repealed the estate tax. In the summer of 2000, during the second session of the 106th
Congress, H.R. 8 was approved by both the House and the Senate, but vetoed by President
Clinton. During the first session of the 107th Congress, H.R. 8 was passed by the House on
April 4, 2001. Many provisions of H.R. 8 were included in the estate tax provisions of
EGTRRA, P.L. 107-16, enacted June 7, 2001. During the second session of the 107th
Congress, three amendments to H.R. 8 were considered but not passed by the Senate on June
11 and 12, 2002.
12 The original Pomeroy proposal had also included revenue offsets from customs user fees
and closing corporate tax shelter loopholes, but they were disallowed by the Rules
Committee as non-germane.

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the House and Senate bills. Alternatively, this procedure could permit the Senate to
act on the House bill without further action by the Finance Committee.
Overview of Bills Introduced in the 108th Congress
To date, 26 measures addressing the estate tax have been introduced in the 108th
Congress, 19 in the House and seven in the Senate. The bills can be grouped under
three broad categories. First, eight House bills would make the repeal of the estate
tax permanent after 2010. H.R. 8 (Dunn) and H.R. 57 (Dunn) would remove the
sunset provision of the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA, P.L. 107-16) solely with respect to the estate tax provisions (Title V) of
EGTRRA. H.R. 139 (McGinnis) and H.R. 158 (Pitts) are equivalent in substance to
H.R. 57. H.R. 210 (Tiberi), H.R. 407 (Bonner), H.R. 1612 (Hulshof), and H.R. 3773
(Hulshof) would repeal the entire sunset provision, making all of EGTRRA’s tax cuts
permanent. In addition, S.J.Res. 20 (Kyl) and S.J.Res. 21 (Kyl) would express the
sense of Congress that the number of years during which the estate tax is repealed
should be extended, pending the permanent repeal of the tax.
Second, four bills would accelerate the repeal of the estate tax, currently
scheduled for 2010 under EGTRRA. One bill is in the House and the three others in
the Senate, introduced by Senator Kyl. H.R. 51 (Cox) would repeal the gift tax,
along with the estate and generation-skipping transfer taxes, effective in 2003. S. 13
(Kyl) and S. 169 (Kyl) would accelerate the repeal of the estate and GST taxes to
2005. S. 13 and S. 169 (like H.R. 57, H.R. 139, and H.R. 158 in the House) would
make the repeal permanent by removing the sunset provision solely with respect to
the estate tax provisions of EGTRRA. S. 96 (Kyl), like S. 13 and S. 169, would
accelerate the repeal of the estate and GST taxes to 2005. In contrast to S. 13 and
S. 169, S. 96 would make the repeal permanent by repealing the sunset for all
provisions of EGTRRA (not just the estate tax provisions). In addition, S. 96 would
accelerate the income tax rate reductions scheduled under EGTRRA and introduce
other provisions favorable to investments and retirement plans.
Third, twelve bills would retain but alter the estate tax. Ten are in the House
and two in the Senate. Three would repeal the estate tax for qualified family-owned
business interests. Nine would immediately increase the applicable exclusion
amount.13 One, S. 135 (Dayton), would do both. Some bills would explicitly repeal
13 The amount of a decedent’s assets that may be transferred free from estate tax is
commonly referred to as the “exemption amount” or simply the “exemption.” Formally,
however, in the Internal Revenue Code , the exemption is called the “applicable exclusion
amount.” EGTRRA calls it the “unified credit effective exemption amount,” referring to the
unified estate and gift tax credit.
Under the law prior to EGTRRA, the applicable exclusion amount was scheduled to
rise from $675,000 in 2001, in steps, to $1 million in 2006. Thus, $1 million would be the
exemption amount in effect if EGTRRA sunsets as scheduled on December 31, 2010.
EGTRRA raised the applicable exclusion amount to $1 million for 2002 and 2003,
$1.5 million for 2004 and 2005, $2 million for 2006-2008, and $3.5 million for 2009, before
the tax is repealed in 2010.
(continued...)

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the modified carryover basis rules scheduled to take effect in 2010 when the estate
tax is repealed under EGTRRA; instead, they would retain the current-law step-up
in basis rules for calculating the capital gain upon sale by heirs of assets transferred
at death. Two companion bills would exempt family-owned businesses and farms
from the estate tax but impose carryover basis treatment on the subsequent sale of
those assets.
As previously mentioned, H.Amdt. 171 to H.R. 8 (Pomeroy) would increase the
estate tax exclusion to $3 million. As partial revenue offsets, it would freeze estate
and gift tax rates at their current level (with a maximum rate of 49%), limit the ability
to claim valuation discounts of nonbusiness assets and to count those assets in the
determining the value of an interest, limit minority discounts for interests in family-
controlled entities, and restore the prior-law phaseout of the benefit of both the
graduated rates and the exclusion amount by reimposing a 5% surtax on estate values
above $10 million, over a limited range of values. It would repeal the modified
carryover basis rules and keep the step-up in basis rules for assets transferred at
death.
As revenue offsets to the other provisions of H.R. 396 (DeFazio), section 602
of the bill would repeal EGTRRA’s repeal of the estate and GST taxes. It would
increase the applicable exclusion amount to $5 million; keep the maximum estate tax
rate at its 2003 level of 49%, applied to taxable estate amounts over $2 million; and
repeal the carryover basis, keeping stepped-up basis. In addition, section 601 would
freeze EGTRRA’s reduction of the top individual income tax marginal rate at its
2003 level of 38.6%.
H.R. 2477 (Ford) would increase the exclusion equivalent of the unified credit
to $7.5 million, reduce the marginal estate and gift tax rates to 25% for taxable estate
values up to $50 million and 30% for $50 million and over, and repeal the modified
carryover basis rules. H.R. 2480 (Leach) would increase the exclusion equivalent of
the unified credit to $10 million (indexed for inflation), increase the annual gift tax
exclusion to $50,000 (indexed for inflation), and lower the estate and gift tax rates
to 30%. H.R. 2481 (Lowey) would increase the unified credit against estate and gift
taxes to the equivalent of a $2,500,000 exclusion amount (inflation-adjusted) and
reduce estate tax rates by 20%. H.R. 2502 (Bereuter) would raise the exclusion
equivalent of the unified credit to $10 million (indexed for inflation), repeal the
special benefit for family-owned business interests (Sec. 2057 of the Internal
Revenue Code), and lower the estate and gift tax rate to the highest income tax rate
for the year. H.R. 2532 (Kennedy, P.) would increase the applicable exclusion
amount to $3 million, restore the maximum rate of estate and gift tax to 50%, repeal
the modified carryover basis provisions of EGTRRA, and deposit revenues from the
13 (...continued)
The applicable exclusion amount is expressed per decedent. With appropriate estate
tax planning, a couple could take advantage of twice the exclusion amount.
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, 4-5. For further
explanation of the relationship between the applicable exclusion amount and the applicable
credit amount, see CRS Report RL31092, Calculating Estate Tax Liability During the Estate
Tax Phasedown Period 2001-2009, by Nonna A. Noto, 1-2.

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estate tax into the Social Security trust funds. H.R. 2610 (Peterson, C.) would
increase the estate and gift tax unified credit to an exclusion equivalent of
$5,000,000, repeal the modified carryover basis rules of EGTRRA, and reduce the
estate and gift tax rate to 15% or, if lower, the generally applicable capital gains rate
for individuals. H.R. 2682 (Lowey) would increase the unified credit against estate
and gift taxes to the equivalent of a $3,000,000 exclusion amount (inflation-adjusted)
and reduce estate tax rates by 20%.
S. 34 (Lincoln) would keep the estate tax but immediately and permanently
repeal the tax on family-owned businesses and farms. These would be classified as
carryover business interests (COBIs) and carryover (not stepped-up) basis would
apply in any subsequent sale by the heir. S. 34 would also eliminate several
restrictive requirements included under the current qualified family-owned business
interest (QFOBI) rules. Companion bill H.R. 2513 (Thompson) is equivalent in
substance to S. 34 but uses the term “qualified family-owned business interests” in
place of “carryover business interests.”
S. 135 (Dayton) would increase the applicable exclusion amount for all estates
to $4 million and provide a complete estate tax exclusion for family-owned
businesses. It would eliminate EGTRRA’s repeal of the estate tax and its institution
of carryover basis. It would also expand the 10% (lowest) tax bracket under the
individual income tax, freeze the rate decline for the top income tax brackets, and
address other income tax issues.
This report does not cover the several bills that would repeal the estate and gift
taxes as part of a major overhaul of the federal tax system. They include proposals
to replace the current income tax with a flat tax on earned income, a tax on consumed
income, a modified value added tax, or a national sales tax.14
In the descriptions below related to provisions of EGTRRA, references to the
estate tax include the generation-skipping transfer tax, but not the gift tax. Under
EGTRRA, the gift tax would continue after the estate tax is repealed. Also under
EGTRRA, the repeal of the estate and GST taxes is accompanied by replacing the
step-up in basis treatment by a “modified carryover basis” for inherited assets. Any
exceptions to these conventions are noted in the bill descriptions that follow.
House
H.R. 8 (Dunn). Death Tax Repeal Permanency Act of 2003. H.R. 8 would
make the repeal of the estate and generation-skipping transfer tax permanent by
exempting the estate tax provisions (Title V) from the sunset provisions of
EGTRRA. Equivalent in intent to H.R. 57. Introduced June 12, 2003; referred to
Committee on Ways and Means. Brought directly to the House floor on June 18,
2003, under provisions of rule H.Res. 281, without being reported by the Ways and
Means Committee. Passed the House by a vote of 264-163 (Roll no. 288). Placed
14 For more information on fundamental tax reform proposals and the role of the
estate and gift taxes in those proposals, see CRS Issue Brief IB95060, Flat Tax
Proposals and Fundamental Tax Reform: An Overview, by James M. Bickley.

CRS-8
directly on the Senate Calendar. In June 2003 the Joint Committee on Taxation
estimated the revenue cost to be $161.8 billion over the 11-year period FY2003-
FY2013 and $63.6 billion for FY2013 alone.
H.Res. 281 (Rules Committee). Rule governing House consideration of
H.R. 8. Modified closed rule providing for one hour of debate on H.R. 8, equally
divided between the chairman and ranking minority member of the Ways and Means
Committee. Provided for the consideration of only one amendment, an amendment
in the nature of a substitute, if offered by Representative Earl Pomeroy or his
designee. Provided for an additional hour of debate on the amendment, equally
divided and controlled by the proponent and an opponent. Waived all points of order
against the amendment printed in the report. Provided for one motion to recommit
the bill, with or without instructions. Reported to the House by voice vote of the
Rules Committee on June 17, 2008. Approved by the House by voice vote on June
18, 2003. (See also H.R. 8 — Death Tax Repeal Permanency Act of 2003 [H.Rept.
108-187], 108th Cong., 1st Sess., June 17, 2003, which contains both the rule and the
Pomeroy amendment.)
H.Amdt. 171 (Pomeroy) to H.R. 8. H.Amdt. 171 to H.R. 8 would increase
the estate tax exclusion to $3 million, effective January 1, 2004. Would partially
offset the cost of increasing the exclusion by freezing the current estate and gift tax
rates (with a maximum rate of 49%), limiting the ability to claim valuation discounts
of nonbusiness assets and to count those assets in the determining the value of an
interest, limiting minority discounts for interests in family-controlled entities, and
restoring the prior-law phaseout of the benefit of the graduated tax rates and
exclusion amount by reimposing a 5% surtax on estate values above $10 million,
over a certain range. Would repeal the modified carryover basis rules (scheduled to
take effect in 2010 when the estate tax is repealed under EGTRRA); would keep the
current-law step-up in basis rules instead. Introduced on the House floor June 18,
2003, as an amendment in the nature of a substitute to H.R. 8, under provisions of
rule H.Res. 281. Defeated by a vote of 188-239 (Roll no. 287). The Joint Committee
on Taxation estimated the revenue cost to be $27.8 billion over the 10-year period
FY2004-FY20013. The original Pomeroy proposal had also included revenue offsets
from customs user fees and closing corporate tax shelter loopholes, but they were
disallowed by the Rules Committee as non-germane.
H.R. 51 (Cox). Family Heritage Preservation Act. H.R. 51 would repeal the
federal death tax, including gift taxes as well as the estate tax and the tax on
generation-skipping transfers, effective in 2003. Lists seven findings related to death
taxes and saving, investments, and other taxes. Introduced January 7, 2003; referred
to Committee on Ways and Means.
H.R. 57 (Dunn). Death Tax Permanency Act of 2003. H.R. 57 would make
the repeal of the estate tax and generation-skipping transfer tax permanent. Would
amend EGTRRA to exempt only the estate tax provisions (Title V) from the sunset
provisions of EGTRRA. Equivalent in intent to H.R. 8. Equivalent in substance to
H.R. 139 and H.R. 158. H.R. 57 was introduced January 7, 2003; referred to
Committee on Ways and Means.

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H.R. 139 (McInnis). Permanent Death Tax Repeal Act of 2003. Equivalent
in substance to H.R. 57. H.R. 139 was introduced January 7, 2003; referred to
Committee on Ways and Means.
H.R. 158 (Pitts). Equivalent in substance to H.R. 57. H.R. 158 was
introduced January 7, 2003; referred to Committee on Ways and Means.
H.R. 210 (Tiberi). H.R. 210 would accelerate the income tax rate cuts made
by EGTRRA and remove the sunset provision, making all the tax cuts of EGTRRA
permanent. Introduced January 7, 2003; referred to Committee on Ways and Means.
H.R. 396 (DeFazio). Emergency Anti-Recession Act of 2003. Section 602
of H.R. 396 would retain the estate and GST taxes by repealing EGTRRA’s repeal
of those taxes. It would increase the applicable exclusion amount for estates to $5
million starting in 2004; keep the maximum estate tax rate at its 2003 level of 49%
(rather than declining by one percentage point per year to 45% by 2007); and repeal
the carryover basis that is scheduled to replace the step-up in basis in 2010 under
EGTRRA. These estate tax provisions, together with freezing the reduction of the
top individual income tax marginal rate at its 2003 level of 38.6% (Sec. 601), are
revenue offsets to the other provisions of the bill. Introduced January 28, 2003;
referred to Committee on Ways and Means and, in addition, to Committees on
Transportation and Infrastructure; Education and the Workforce; Energy and
Commerce; Agriculture; Financial Services; Armed Services; and numerous
subcommittees.
H.R. 407 (Bonner). H.R. 407 would repeal the sunset provisions of EGTRRA
(Title IX), making all of the tax cuts permanent. Introduced January 28, 2003;
referred to Committee on Ways and Means.
H.R. 1612 (Hulshof). H.R. 1612 would repeal the sunset provisions of
EGTRRA (Title IX), making all of the tax cuts permanent. Equivalent in substance
to H.R. 407. Introduced April 3, 2003; referred to Committee on Ways and Means.
H.R. 2477 (Ford). H.R. 2477 would increase the exclusion equivalent of the
unified credit to $7.5 million. Would reduce the marginal estate and gift tax rates to
25% for taxable estate values up to $50 million and 30% for $50 million and over.
Would repeal both the repeal of the estate tax and the introduction of the modified
carryover basis scheduled to take effect in 2010. Would retain the step-up in basis
treatment of assets transferred at death. Would remove the sunset provision for the
remaining estate tax provisions of EGTRRA. Introduced June 16, 2003; referred to
Committee on Ways and Means.
H.R. 2480 (Leach). H.R. 2480 would increase the exclusion equivalent of the
unified credit to $10 million (indexed for inflation), increase the annual gift tax
exclusion to $50,000 (indexed for inflation), and lower the estate and gift tax rates
to 30%. Introduced June 16, 2003; referred to Committee on Ways and Means. On
June 17, 2003, the House Rules Committee declined to permit the text to be offered
as an amendment under the provisions of H.Res. 281, the rule governing floor
consideration of H.R. 8 on June 18, 2003.

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H.R. 2481 (Lowey). Estate Tax Reduction Act of 2003. H.R. 2481 would
reduce estate tax rates by 20% and increase the unified credit against estate and gift
taxes to the equivalent of a $2,500,000 exclusion amount, adjusted for inflation.
Introduced June 16, 2003; referred to Committee on Ways and Means.
H.R. 2502 (Bereuter). Estate Tax Relief Act of 2003. H.R. 2502 would
lower the estate and gift tax rate to the highest income tax rate for the year, raise the
exclusion equivalent of the unified credit to $10 million (indexed for inflation), and
repeal the special benefit for family-owned business interests (Sec. 2057 of the
Internal Revenue Code). Introduced June 18, 2003; referred to Committee on Ways
and Means.
H.R. 2513 (Thompson). Estate Tax Repeal for Family-Owned Farms and
Businesses Act of 2003. H.R. 2513 would immediately and permanently repeal the
estate tax on family-owned farms and businesses. Equivalent in substance to
companion bill S. 34 (Lincoln) except that H.R. 2513 uses the term “qualified family-
owned business interests” in place of S. 34’s “carryover business interests.”
Introduced June 18, 2003; referred to Committee on Ways and Means.
H.R. 2532 (Kennedy, P.). Save Social Security First Act of 2003. H.R. 2532
would eliminate EGTRRA’s repeal of the estate tax and institution of carryover basis
scheduled for 2010. Effective in 2004, would increase the applicable exclusion
amount to $3 million and restore the maximum rate of estate and gift tax to 50%.
After 2004, would deposit revenues from the estate tax into the Social Security trust
funds (the Federal Old Age and Survivors and Federal Disability Insurance (OASDI)
trust funds). Introduced June 19, 2003; referred to Committee on Ways and Means.
H.R. 2610 (Peterson, C.). H.R. 2610 would restore the estate tax and repeal
the carryover basis rule of EGTRRA. Would reduce the estate and gift tax rate to
15% or, if lower, the generally applicable capital gains rate for individuals. Would
increase the estate and gift tax unified credit to an exclusion equivalent of
$5,000,000. Introduced June 26, 2003; referred to Committee on Ways and Means.
H.R. 2682 (Lowey). Estate Tax Reduction Act of 2003. H.R. 2682 would
reduce estate tax rates by 20% and increase the unified credit against estate and gift
taxes to the equivalent of a $3,000,000 exclusion amount, adjusted for inflation.
Introduced July 9, 2003; referred to Committee on Ways and Means.
H.R. 3773 (Hulshof). Tax Relief Guarantee Act of 2004. H.R. 3773 would
make the repeal of the estate and generation-skipping transfer tax permanent after
2010 by repealing the sunset for all tax provisions of EGTRRA. Would also repeal
the scheduled reductions in tax benefits provided by the Jobs and Growth Tax Relief
Reconciliation Act of 2003 (JGTRRA). Introduced February 4, 2004; referred to
Committee on Ways and Means.

CRS-11
Senate
S. 13 (Kyl). Death Tax Fairness Act of 2003. S. 13 would accelerate the
repeal of the estate and generation-skipping transfer taxes to 2005 (compared to 2010
under EGTRRA). Would make permanent the repeal of the estate and GST taxes by
removing the sunset provision solely with respect to the estate tax provisions of
EGTRRA (Title V) after 2010. S. 13 is equivalent in substance to S. 169 (Kyl).
Introduced February 14, 2003; read the second time and placed on the calendar
February 24, 2003.
S. 34 (Lincoln). Estate Tax Repeal Acceleration (ExTRA) for Family-Owned
Businesses and Farms Act. S. 34 would immediately and permanently repeal the
estate tax on family-owned businesses and farms. Would repeal section 2057 of the
Internal Revenue Code (IRC) regarding the deduction for qualified family-owned
business interests. In its stead, would introduce a new section 2059 of the IRC
providing for a dollar-unlimited deduction from the gross estate of the “carryover
business interests” (COBIs) of the decedent. Carryover (not stepped-up) basis would
apply in any subsequent sale by the beneficiary. No spousal property basis increase
could be allocated to a COBI. The COBI deduction could not apply to property
acquired by the decedent by gift, or for less than adequate and full consideration,
during the three-year period before the decedent’s death.
The bill would eliminate several requirements under the current qualified
family-owned business interest (QFOBI) rules: that the business represent at least
50% of the decedent’s gross estate; that the heir materially participate in the business;
that the tax benefit be recaptured if the heir does not participate over the next 10
years; and that not more than 35% of a business’s adjusted gross income be passive
income. The exempt COBI would be permitted to hold cash or marketable securities,
or both, up to “reasonably anticipated business needs,” a term that is expected to
encompass funds needed to retire debt or expand the business. This is in contrast to
current law which limits exempt cash and marketable securities to the “reasonably
expected day-to-day working capital needs” of the business.
The executor would have the option to allow family-owned business interests
to pass under ordinary estate tax law, as would the other taxable assets in the estate.
Under ordinary law, the (net) taxable estate would be free from estate tax for amounts
up to the applicable exclusion amount plus property transferred to a surviving spouse
under the unlimited marital deduction. Assets would receive a step-up in basis, with
the exception that the aggregate spousal basis increase would be limited to $3
million.
These amendments would apply to the estates of decedents dying and gifts made
1) after December 31, 2003, and before January 1, 2010, and 2) after December 31,
2011 [sic]. (Presumably, December 31, 2010, is intended. If this presumption is
correct, the bill assumes that the estate tax will remain in effect except for 2010, as
provided by EGTRRA and its sunset provision.) No estate tax would be due on the
estates of decedents who die in 2010, the year of repeal under current law.
S. 34 is equivalent in substance to companion bill H.R. 2513 (Thompson),
except that H.R. 2513 uses the term “qualified family-owned business interests” in

CRS-12
place of S. 34’s “carryover business interests.” Introduced January 7, 2003; referred
to Committee on Finance.
S. 96 (Kyl). Contract With Investors. S. 96 would repeal the sunset for all tax
provisions of EGTRRA, including those applying to the estate tax. Would accelerate
the repeal of the estate and generation-skipping transfer taxes to 2005 (compared to
2010 under current law). In addition, would accelerate the scheduled reductions in
individual income tax rates. Would reduce the maximum capital gains tax rate for
individuals to 10% (from 20%). Would increase the limit on capital losses applicable
to individuals to $10,000 (from $3,000), indexed for inflation. Would accelerate the
scheduled increase in contributions to certain retirement plans. Would increase the
age for beginning mandatory distributions from qualified pension and retirement
plans to 75 (from 70 1/2). Would exclude from income taxation dividends received
by individuals.
Includes a sense of the Senate resolution endorsing action by Congress to
safeguard American workers’ pension and retirement accounts; to modernize this
country’s international tax provisions in order to enhance the international
competitiveness of U.S. companies; to repeal redundant, outdated, and unscientific
regulatory burdens on investors and U.S. companies and perform a cost-benefit
analysis before enacting new burdens; to enact meaningful tort reform; and to enact
meaningful tax reform that simplifies the federal tax code and reduces the cost
recovery periods that businesses must use to recover the cost of capital (reduces the
number of years over which depreciation deductions must be spread). Introduced
January 7, 2003; referred to Committee on Finance.
S. 135 (Dayton). Dayton Fair Tax Cut Act. S. 135 would eliminate
EGTRRA’s repeal of the estate tax and institution of carryover basis scheduled to
take effect in 2010. Instead, would immediately increase the applicable exclusion
amount to $4 million and provide a complete estate tax exclusion for family-owned
businesses. Would also expand the 10% (lowest) tax bracket under the income tax
and freeze the rate decline for the top income tax brackets. Also addresses tax shelter
transactions; expatriate corporations; acceleration of increase in child tax credit;
acceleration of marriage penalty relief; and extension of alternative minimum tax
relief. Introduced January 9, 2003; referred to Committee on Finance.
S. 169 (Kyl). Permanent Death Tax Repeal Act of 2003. S. 169 would
accelerate the repeal of the estate and generation-skipping transfer taxes and the
implementation of the modified carryover basis to 2005 (compared to 2010 under
EGTRRA). Would make permanent the repeal of the estate and GST taxes by
removing the sunset provision solely with respect to the estate tax provisions of
EGTRRA (Title V) after 2010. S. 169 is equivalent in substance to S. 13 (Kyl).
Introduced January 15, 2003; referred to Committee on Finance.
S.J.Res. 20 (Kyl). S.J.Res. 20 is a joint resolution expressing the sense of
Congress that the number of years during which the death tax is repealed should be
extended, pending the permanent repeal of the death tax. Introduced October 23,
2003; referred to Committee on Finance.

CRS-13
S.J.Res. 21 (Kyl). S.J.Res. 21 is identical in content to S.J.Res. 20.
Introduced October 27, 2003; placed directly on the Senate calendar.
For Additional Information
CRS Electronic Briefing Book, Taxation, “Federal Estate and Gift Tax,” available
at [http://www.congress.gov/brbk/html/ebtxr35.html].
CRS Report RL31092, Calculating Estate Tax Liability During the Estate Tax
Phasedown Period 2001-2009, by Nonna A. Noto.
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 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, Legislative Attorney.
For Arguments in Support of Retaining but Reforming the Estate Tax:
Council on Budget and Policy Priorities. Permanent Repeal of the Estate Tax Would
Be Costly, Yet Would Benefit Only a Few, Very Large Estates. By Joel Friedman and
Andrew Lee. June 17, 2003. Washington, 2003. 19 p. Full report available on the
Web at [http://www.cbpp.org/6-17-03tax.pdf]; two-page summary, Estate Tax
Should Be Reformed, Not Repealed, by John Springer, at [http://www.cbpp.org/6-17-
03tax-fact1.htm]. Two related fact sheets by John Springer were also published on
June 17, 2003: Estate Tax Affects Very Few Family Businesses, online at
[http://www.cbpp.org/6-17-03tax-fact2.htm], and Repealing the Estate Tax Would
Reduce Charitable Giving at [http://www.cbpp. org/6-17-03tax-fact3.htm]. Stored
under Federal Tax Policies, 2003, visited May 13, 2004.
For Arguments Opposing the Estate Tax:
U.S. Congress. Joint Economic Committee. The Economics of the Estate Tax: An
Update. A Joint Economic Committee Study. By Dan Miller, Senior
Economist. 108th Cong., 1st Sess., June 2003. Washington, 2003. 12 p.
Available on the Web at [http://www.house.gov/jec/tax/06-18-03.pdf], visited
May 13, 2004.