More on H.R. 3905

There's a press release today from the sponsors of the just-introduced estate tax reform bill, Tax Notes reports. I've read the bill, which is very short and to the point. It does not include portability of the estate tax exemption, but it does have one surprise.

In the last century, the feds and state government shared death tax revenue through a mechanism called "the credit for state death taxes." To mitigate the loss of federal revenue with the 2001 estate tax reform, the credit was phased out, replaced by a deduction for state death taxes. This had the effect, intended or not, of eliminating death taxes in those states with regimes keyed to the federal credit.

H.R. 3905 would complete this cycle by phasing out the deduction for state death taxes over ten years, as it reduces the tax rate to 35%.

If this passes, it will greatly increase the pressure on those states who have been hanging on to their estate or inheritance taxes. Their wealthy residents will have a fairly easy solution for avoiding the states' death tax designs.