Estate Tax Legislative Update

Current Law
The estate tax currently (2006) exempts the first $2 million of estates per individual - which means that the first $2 million of estates can be passed to heirs tax-free by an individual, and $4 million can be passed on tax-free by married couples. This exemption level is scheduled to increase to $3.5 million ($7 million) in 2009, before being fully repealed in 2010 and then reinstated at $1 million in 2011.

Currently, only about the wealthiest 1.25 percent of heirs pay any tax. In 2009, the last year before repeal, less than 0.5 percent of heirs will pay any tax and the first $3.5 million will be tax-free.

Legislative Status: 109th Congress

Most legislative attempts to repeal simply seek to extend the sunset of the 2001 law starting in 2011. In 2005, a repeal once again passed the House, but opponents of the tax are still a few votes short in the Senate to break a Democratic filibuster.

• On April 15, the House passed H.R. 8 - a bill to make permanent the full repeal in 2011 and beyond - by a vote of 272 to 162.
• The Senate is considering a number of compromise bills that would stop short of full repeal. There does not seem to be enough votes to pass full repeal
• The Bush administration has indicated that full repeal is a top priority.

At various times, a large number of options for reform have been proposed. The most common element of reform is an increase in the exemption level. On such option was offered as an amendment to H.R. 8 in the House by Representative Pomeroy (D-ND) during the debate in April 2005. His alternative would raise the exemption level to $3.5 million and thus exempt 99.7 percent of all estates from the tax. Unfortunately, it was defeated.

For the most recent news and reports, see the latest news page.

Cost Estimates
Over the next decade, the repeal of the estate tax is expected to cost $290 billion in lost federal revenues.

Over the next two decades, full repeal of the estate tax is expected to cost nearly $1 trillion in lost federal revenues.