Blogs Derek's Tax Blog The Estate Tax & the President’s Budget
A couple of weeks ago when it was released I reviewed President Obama’s Budget. I have been accused of being a pessimist about the estate tax. While it is true that during the campaign President Obama promised to create a permanent estate tax exemption of $3.5 million. But a lot has changed since then. As an estate planner I believe my first responsibility is to plan for what the law actually is and only than make reasonable assumptions as to what it may be in the future. For this reason I have been anxiously awaiting something in writing from the President to indicate that he plans follow through with his promise on the estate tax.
The budget says very little about the estate tax. There is one vague reference in footnote on one of tables and there is a line item for the Estate and Gift Tax in the projections for the current baseline and the proposed budget. I thought maybe I was missing something, so I waited to see if anyone else commented on it. Yesterday Peter Roff did, (read). My take is a little different than Mr. Roff’s. What I find curious is that the line items for the Estate and Gift Tax are exactly the same for the current baseline and the proposed budget. Why? I was expecting to see a line item on the proposed budget that shows a revenue increase (tax increase) for next year and a revenue decreases for the remaining years.
Essentially the cost of President Obama’s estate tax proposal is off budget! This is accomplished by assuming that H. R. 436, the Certain Estate Tax Relief Act of 2009 will be passed. (Here is a recent review of H. R. 436.) That bill is still in committee, and somehow congress will have to deal with the cost of it to get it passed. I have seen estimates that the cost (in terms of revenue) of maintaining a $3.5 million exemption over 10 years is up to $600 billion. During the campaign the Tax Policy Center estimated the cost of Obama’s plan to be about $310 billion through 2018. In January the Wall Street Journal reported that it would cost $324 billion.
Why was it done this way? I don’t know. This could just be common practice or it could be a way to make it easier for the budget bill or the estate tax bill to get passed. Being the pessimist again, I could say this is a way to kill the estate tax bill. The President has done enough to say that he is meeting his campaign promise on the estate tax; however, it is not the same level of support it would have if it was included in the budget. It is almost as if the cost and tax policy debate of the estate tax promise is being hidden. If the estate tax bill is to make it out of committee let alone be signed into law, it will need to stand on its own.