Blogs Derek's Tax Blog Pay-as-You-Go aka PAYGO
It has been reported that last night the House and Senate reached a deal for the 2010 budget resolution that includes an extension of the 2009 estate tax exemption. This is a tax increase for 2010 since the estate tax was set to be repealed next year; however, it is scored as a tax cut in the resolution since it will increase the exemption in years 2011 through 2014. So unless you are unlucky enough to die next year, this is a good thing.
However, don’t start celebrating just yet. In an earlier post I discussed the influence of the Blue Dog Democrats in the House. In order to get the support of this group Speaker of the House Nancy Pelosi and Majority Leader Steny Hoyer drafted a letter promising the Blue Dogs to follow PAYGO for four bills, including the estate tax bill, even though the Senate hasn’t yet agreed to it.
Pay-as-You-Go, or PAYGO, prohibits any additional tax cuts or new spending unless the costs are covered by tax increases or spending cuts. The Washington Post describes it here. One reason that PAYGO presents a problem for the Senate is due to the difficulty in obtaining 60 votes. However, that will be easier now that Senator Arlen Specter of Pennsylvania has switched to the Democratic party.
Going back to my earliest posts following President Obama’s election, I have been concerned about the future of the estate tax once the fiscal realities force congress and the President to set priorities. How sacred is an estate tax exemption of $3.5 million when they are trying to pay for health care, renewable energy, AMT relief, or the President’s other proposals?
Obama’s signature "Making Work Pay" tax cut would be extended through fiscal 2010. Obama had wanted the proposal — worth $400 for singles and $800 for couples — to be made permanent, and White House officials have said they will work with Congress to come up with a way of extending it. Link to Source.
My guess is that estate tax exemption will be $3.5 million in 2010. By passing this budget President Obama will be meeting his campaign promise on the estate tax, but in 2010 I expect a tax bill that will increase taxes to pay for other priorities. I would not be surprised if next years tax bill includes an estate tax increase.