July 2010

New Senate Estate Tax Offering Would Levy Billionaire Surtax

Motivated by the first billion-dollar estate passing to heirs tax-free, Sen. Bernard Sanders (I-VT) and four co-sponsors have introduced a bill that would return the estate tax to the 2009 exemption level of $3.5 million but add a progressive tax rate structure that would start at 45 percent, rise to a top level of 55 percent, and add a 10 percent surtax on billionaires. The proposal would be retroactive to the start of 2010.

The Responsible Estate Tax Act (S. 3533), introduced on June 24, 2010, is cosponsored by Sens. Sherrod Brown (D-OH), Al Franken (D-MN), Tom Harkin (D-IA), and Sheldon Whitehouse (D-RI). According to its sponsors, the proposal would bring in at least $264 billion over a decade while exempting 99.7 percent of Americans from paying any estate tax. The retroactivity provision would likely face a court challenge from heirs of wealthy individuals such as the late Dan L. Duncan, a Texas oil and gas pipeline magnate who died in March with a net worth estimated at $9.8 billion. Duncan's heirs stand to inherit his wealth estate tax free, although an aide to Sen. Sanders said he believes retroactivity would be constitutional and would withstand a court test.

The bill would:

- Create a progressive rate so the very wealthy pay more. The tax rate for estates valued between $3.5 million and $10 million would be 45 percent, the same as the 2009 level. The rate on estates worth more than $10 million and below $50 million would be 50 percent, and the rate on estates worth more than $50 million would be 55 percent.

- Include a billionaire's surtax of 10 percent. According to Forbes magazine, there are only 403 billionaires in the United States, with a collective net worth of $1.3 trillion. The tax would apply to estates above $500 million, which would allow couples o pass $1 billion on to heirs without facing the surtax.

- Protect family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes. The bill also would increase the maximum exclusion for conservation easements to $2 million.

- Close estate and gift tax loopholes as President Obama proposed in his budget for next year. The White House estimates that closing the loopholes would generate at least $23.7 billion in revenue over 10 years

"The Sanders proposal is one extreme in the current debate," Clint Stretch, an analyst at Deloitte Tax, told the Wall Street Journal. "The challenge for the Senate is whether the members can agree to anything at all."

Iowa Sen. Charles Grassley, the highest-ranking Republican on the Senate Finance Committee, said "I welcome the other side's finally putting a proposal on the table."

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