House Votes to Extend Tax on Estates of the Wealthy

WASHINGTON — The House voted Thursday to expand indefinitely a 45 percent inheritance tax on estates larger than $3.5 million, canceling a one-year repeal of the tax that is set to begin next month.

A similar effort is under way in the Senate, but the health debate could preclude action on the estate tax before Congress breaks for holidays. There are also disagreements among senators over the tax rate and the size of estates that should be exempt, further clouding the bill’s prospects.

But lawmakers do not want to delay action until next year because they are wary of enacting retroactive tax changes.

Special: Get Sarah Palin’s New Book – Incredible FREE Offer -- Click Here Now.

Under the House bill, estates smaller than $3.5 million would continue to be exempt from the tax. Married couples, with a little estate planning, could exempt a total of $7 million. That leaves less than 1 percent of all estates subject to the tax.

The bill passed by a 225-to-200 vote, with all Republicans opposed. Democrats who voted for the bill argued that a permanent tax rate made it easier for families and small-business owners to do estate planning.

“In America, it’s not a sin to be rich nor is it a crime to die rich,” said Representative Jared Polis, Democrat of Colorado. “This bill gives our nation’s wealthiest families the ability to know exactly what their obligation to the nation that fostered their wealth will be, and it is fair and it is just.”

The bill follows the federal budget proposed by President Obama. But many Republicans called for a permanent repeal of the estate tax, which some call a “death tax,” arguing that it hurts families that pass down farms and small businesses to their children.

“The majority claims to be offering certainty to taxpayers, and I suppose in a way they are — they are certainly repealing the hope of ever eliminating the death tax,” said Representative Dave Camp of Michigan, the top Republican on the tax-writing House Ways and Means Committee.

Under current law, the federal estate tax is scheduled to disappear temporarily next year before returning in 2011 at a higher rate, 55 percent. During the year without an estate tax, all estates would be subject to a 15 percent capital gains tax that they now avoid.

“If Congress does not act on this issue this month, you would have a wildly fluctuating scenario of different estate tax levels, making it impossible for families to plan,” said Representative Earl Pomeroy, Democrat of North Dakota and the chief sponsor of the House bill.

Some liberals have complained that the bill is a giveaway to the rich because it would result in lower rates in future years than what current law provides. Conservatives argue for a permanent repeal.

“We’re trying to forge a compromise that resolves this issue once and for all,” Mr. Pomeroy said.

Under current law, the estate tax would return in 2011 with a $1 million exemption and a top rate of 55 percent, unless Congress acts.

Permanently extending the tax with a top rate of 45 percent on estates larger than $3.5 million would raise about $14 billion a year. But it would raise less tax revenue than current law over the next 10 years — an estimated $234 billion less — because the tax rate would be lower in future years.