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Inheritance Tax

The cost of rebuilding the Gulf Coast after Hurricane Katrina has forced Senate Majority Leader Frist (R-TN) to drop plans to consider legislation to permanently repeal the inheritance tax. Prior to Katrina, Frist had planned to consider the "Death Tax Repeal Permanency Act of 2005" (H.R. 8) after Labor Day. The hurricane's wrath and destruction, however, left that plan and others on hold; it is unlikely the act will be revisited this year. The inheritance tax legislation passed the House of Representatives back in April; it was the fourth time the House has approved the measure.

Currently the inheritance tax is scheduled to be phased out completely by 2010, but reinstated in its original form in 2011. Despite strong support from the President and repeated favorable votes in the House, permanent repeal already faced a tough road in the Senate. Deficit-conscious Senators concerned with the high estimated cost and the narrow group it would benefit presented considerable opposition. Once the rebuilding costs for Hurricane Katrina became evident, it was clear tax-cutting measures would be pared back.

Jon Kyl (R-AZ) and Max Baucus (D-MT) worked on a compromise to exempt estates up to $8 million in value from the tax, while pegging the tax on larger estates to the capital gains rate. Kyl is still very supportive of the idea, but the new fiscal landscape has muted earlier enthusiasm.