Estate Taxes
AH&LA supports the elimination of estate taxes, also known as the "death tax," which are an unnecessary and unfair burden, particularly on small, family lodging businesses.
Estate tax rates have been as high as 55 percent, which caused a financial hardship on family members and employees of lodging property owners. It has not been an uncommon practice for surviving family members to be forced to sell the family property in order to pay the steep tax bill, ending the dream of passing the family business to the next generation. The congressional Joint Economic Committee estimated that business owners spent $847 billion on death tax-related estate planning and compliance costs.
On June 7, 2001, President Bush signed into law historic tax reduction legislation that phased out the estate tax over the subsequent nine years.
Under the previous law, the first $675,000 of an estate was not subject to tax, but the confiscatory tax rate for assets above that level was as high as 55 percent. The 2001 law will increase the amount of an estate not subject to tax (known as the unified credit) to $1 million this year, $1.5 million in 2004, to $2 million in 2006, and to $3.5 million in 2009. The bill also lowers the top tax rate of 55 percent on estates to 50 percent in 2002, then cuts the rate one percentage point per year over the next five years until the tax is eliminated entirely in 2010.
However, because of Senate budget rules, the estate tax provisions as well as the other tax reductions in the 2000 bill will expire on December 31, 2010. If this expiration is not made permanent, the estate tax will be reinstated at its original rate. The top rate for this tax will increase to 60 percent on January 1, 2011, and the value of an estate exempt from taxation will shrink to $1 million, which is less than it is today.
In the 109th Congress, the House of Representatives passed H.R. 8, the Death Tax Repeal Permanency Act of 2005, to make the elimination of the estate tax permanent. AH&LA supported that initiative to permanently repeal of the estate tax. However, the U.S. Senate was not able to meet a procedural hurdle when it began debate on the bill in June 2006 and the measure was not passed before Congress changed parties that November.
As for the 110th Congress, in 2008 for the fifth year in a row President Bush's budget submitted to Congress called for extending the soon-expiring estate tax provisions. Republican House members in April 2008 said they would force a vote to make the current tax rates permanent in an attempt to force the Democratic leadership of the House to consider the measure on the House floor. However, the Democratic majority in the House have blocked numerous attempts by Republicans to add any extension of tax rates to legislation. The last attempt was in May 2008 via H.R. 6049, which extended dozens of other tax breaks and was passed by the House.
Democratic Senate leadership has prevented any effort to amend legislation to make permanent the Bush Administration tax reductions, including the estate tax. Since taking office in January 2009, the Obama Adminstration has made no push to repeal the estate tax, nor to continue the extensions.
The scheduled expiration of the 2001 and 2003 tax cuts at the end of 2010 will alter future investment decisions, slow economic growth, and reduce personal income. Because the economy would suffer if the tax rates are increased, Congress should act now to make permanent the existing tax rates for estate taxes.
The 2001 and 2003 tax cuts will expire at the end of 2010 unless Congress acts to extend them. Congress should act quickly to make the tax cuts permanent and then pursue additional pro-growth tax policies.
AH&LA will continue to support legislative initiatives that include estate tax relief in the 111th Congress.
For more information, contact AH&LA's Senior Vice President for Governmental Affairs Shawn McBurney at (202) 289-3123,
smcburney@ahla.com.(Updated July 2009)