Congress grapples with estate tax

WASHINGTON (Reuters) - U.S. House Democratic Leader Steny Hoyer said the chamber would vote this week to permanently extend the estate tax rates scheduled to expire at the end of 2009, but the road will be tougher in the Senate.

House Majority Leader Rep. Steny Hoyer (D-MD)(L-MD) speaks at a press conference where a plan to deal with executive compensation at companies which received capital under the Troubled Asset Relief Program (TARP) was announced on Capitol Hill in Washington, March 18, 2009. REUTERS/Joshua Roberts

The House will take up a bill introduced last week by Democrat Earl Pomeroy to extend the current policy of taxing estates over a $3.5 million threshold at a rate of 45 percent.

“We believe that a permanent extension of the existing law is the best policy,” Steny Hoyer, the chamber’s majority leader, told reporters.

Preserving the current rates will be harder in the U.S. Senate because that body’s rules require a way to pay for it.

A 10-year extension of the tax would cost an estimated $234 billion versus allowing the tax to revert to a higher rate in 2011, as currently scheduled, according to congressional aides.

Senate Finance Committee Chairman Max Baucus has proposed extending the current 2009 law and indexing it to inflation, but the Senate’s intense focus on healthcare and limited days in the legislative calendar add further hurdles.

“We need to take the time to deal with it,” said Senator Kent Conrad, a Democrat on the finance panel charged with tax issues. But he acknowledged the challenges in getting it done before the end of the year.

“It’s hard -- three weeks left. We’ve got debt limit, we’ve got the healthcare bill, we’ve got appropriations bills.”

The estate tax could expire, and lawmakers could pass a new tax retroactively, but that could create problematic legal issues, Conrad said.

The most likely option, analysts have said, is a one-year extension of current policy, which would actually raise some money, because the tax is currently due to be phased out for one year in 2010.

The taxes are due to come roaring back to life after 2010, unless Congress acts, with an exemption of $1 million for individuals and a tax rate of 55 percent.

Reporting by Andy Sullivan, Kim Dixon and Donna Smith, writing by Julie Vorman; Editing by Tim Dobbyn