House votes to make current estate tax level permanent

The House of Representatives on Thursday voted to make the current estate tax rate permanent -- just weeks before the tax was scheduled to expire for a year.

The measure, which passed on a 225-200 vote, locks in the current rate of 45% for inheritances over $3.5 million. The bill now faces an uncertain future in the Senate.

If Congress fails to act by the end of the year, the tax will disappear for 2010, but then return in 2011 at a rate of 55%, with the first $1 million exempted. That would restore the tax to where it stood before George W. Bush took office.

Republican lawmakers have long argued that the tax should be eliminated entirely, calling it an unfair burden on small businesses and family farms. That put them in the position Thursday of voting against what in essence would be a tax cut.

“We need to reward people who work the hardest and work the smartest in the hope of handing their nest eggs down to their children,” said Rep. Kevin Brady (R-Texas). In the end, every Republican in the House voted against the bill, along with 26 Democrats.

Some Democrats want the estate tax rate to revert to 55%, arguing that the lower rate is costing the federal treasury billions of dollars at a time when ramped-up spending is creating larger budget deficits. Estimates have the government losing about $235 billion in revenue over the next decade if the lower rate is made permanent.

The House measure would affect less than 1% of Americans, the Tax Policy Center said. But because the House bill is not indexed for inflation, the tax would slowly affect a growing number of inheritors.

joliphant@tribune.com