This stunt today just proves that the Republican leaders are no more serious about estate tax relief than they are serious about help for education or a prescription drug benefit.  Just like with the Republican convention, they prove they can put on a good show but their reality is very different.  

If the Republicans really wanted estate tax relief for small businesses and family farmers, they would negotiate with the President and other Democrats.  Instead, they send down a bill they know will be vetoed and should be vetoed.

The Republican leaders aren’t really interested in getting anything enacted that benefits the family farmer or small business owner.  All they want is an excuse to hold more political stunts.

The Democratic Substitute would contain the following reductions in estate and gift taxes:

1) The substitute would provide a 20 percent across-the-board reduction to the estate and gift tax rates.  For example, the maximum rate would be reduced from 55 percent to 44 percent.  

2) Under current law, there is a $1.3 million exclusion from the estate tax for interests in farms and closely held businesses.  The substitute would effectively create a $4 million exclusion per family for farms and closely held businesses.  It would accomplish this by increasing the limit on the small business exclusion from $1.3 to $2 million and by providing that the portion of the exclusion not used in the estate of the spouse first to die will be allowed to the estate of the other spouse.  

3)The substitute would provide an immediate $150,000  increase in the exemption equivalent of the unified credit. 
 

 The substitute would include the following revenue offsets:

1) Before the Taxpayer Relief Act of 1997, there was a provision that phased out the benefits of the unified credit.  A drafting error in the 1997 Act inadvertently repealed that phaseout.  That drafting error provided unintended estate tax reductions to estates with assets in excess of $17 million.  The substitute would restore that phaseout. 

2) Under current law, taxpayers routinely claim valuation discounts when making gifts or bequests of fractional interests in entities such as stock in a corporation or a partnership interest.  A common estate tax avoidance device is to transfer marketable assets to a family limited partnership and claim valuation discounts for gifts or bequests of interests in those partnerships.  The substitute would include the provision recommended in the President’s budget that would eliminate valuation discounts except to the extent that they apply to active business assets.  

3) The substitute would repeal the credit for state inheritance and estate taxes but it would permit a deduction for those taxes.  

4) The substitute would include the estate and gift tax changes that were included in the legislation (H.R. 3099) that was designed to end tax-motivated expatriation.