One small step for permanent estate tax reform

Yesterday the House of Representatives passed a permanent extension of the 2009 federal estate tax regime—drop carryover basis, $3.5 million exemption, 45% tax rate.  No Republicans voted for this, and 26 Democrats dissented as well.  The bill was paired with a statutory "pay-go" provision, which many House Democrats advocate.

"Pay-go" sounds responsible, it's sort of "stop me before I spend again."  As a practical matter, it has been used to require every reasonable tax change to be offset with higher taxes somewhere else, presumably on "the rich."  The "pay-go" concept is what prevents a decent reform of the AMT, for example.

Prospects in the Senate are uncertain at the moment—a giant game of chicken is being played.  Some Senate Democrats want to add indexing of the exemption.  Many Republicans favor the bipartison compromise that was shot down in House, a compromise that would slowly lift the exemption to $10 million and reduce the tax rate to 35%.  The problem is that the Senate remains preoccupied with health care reform.  They could easily spend the rest of the year on that.  Said Senate Majority Leader Harry Reid, "We're working our way through these issues."

As I drove home last night, CBS misreported this news, saying that the House bill would allow beneficiaries to receive $7 million free from estate tax.  I know what they were referring to—married couples can, with basic estate planning, arrange to keep $7 million in the family.  That's very different from what they said.  Without a provision for spousal portability for the federal exemption, using that $7 million figure is deeply misleading.

Accuracy matters little to them, apparently.