WASHINGTON - The House Ways and Means Committee is expected to vote as early as Wednesday on the part of President Bush's $1.6 trillion tax-cut plan most sought by bankers - a repeal of the estate tax.
However, prospective gains could be scaled back or offset with a capital gains charge because of repeal's higher-than-expected price tag.
Capitol Hill sources said that the official cost of repealing the tax has not been released because it is higher than supporters had expected. (News reports have pegged it at about $236 billion.) Having already committed $1.36 trillion to other parts of the Bush plan - from reducing individual tax rates to eliminating the so-called marriage penalty - lawmakers only have $240 billion uncommitted to spend on estate-tax and other relief.
"Lawmakers are discussing compromises that wouldn't be a full-blown repeal" of the estate tax, said Lisa J. Bleier, senior counsel at the American Bankers Association. "We would support as much estate tax reform as they can fit in to the tax bill, but with only some $200 billion left, there are cost problems."
Paul G. Merski, chief economist and director of federal tax policy at the Independent Community Bankers of America, said he is confident that estate-tax reform will be in the final tax bill. "It's just a debate over the size and scope of the relief," he said.
Momentum is building in the House and Senate for a proposal sponsored by Sen. Jon Kyl, R-Ariz., to defray the cost by charging capital gains taxes on the increase in value of inherited assets. The Kyl bill, however, would shield from such taxes the original cost, or "basis," of assets, and the first $2.8 million of growth.
Yet bankers are daunted by the difficulty of figuring out the original cost.
"It would require trust departments to determine the basis for many estates," Ms. Bleier said. "Since we don't know how many estates would be protected" by the $2.8 million exemption, "trust departments are very nervous and concerned this could lead to the administrative nightmare of carryover."
Carryover means determining the original cost of assets acquired decades earlier. Under current law, the value of an estate is "stepped up" - or taxed at the market value at the time the assets are inherited. Bankers want to preserve that method and were angry when chief White House economic adviser Lawrence Lindsey said last month that the administration might support eliminating the stepped-up basis to help pay for the massive tax package. The administration subsequently backtracked, saying it had made no decision.
The ABA complained in a letter to key lawmakers in February that determining the original value of an estate is difficult because deceased owners of such assets often leave incomplete records or had received them as gifts. Also of concern to the industry is that bankers who serve as executors would be obliged to certify the original value to heirs, which would require exhaustive research of estates.
And bankers remain disappointed that the Bush tax-cut plans does not include their top tax priority: increasing the ceilings on tax-deferred contributions to individual retirement accounts and 401(k) accounts. Washington watchers predict that such legislation, though expected to pass the House, will not make it through the Senate.
Senate Majority Leader Trent Lott told lawmakers last month that the Senate should focus on passing the Bush tax-cut package before taking up IRA and 401(k) issues.
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