(Bloomberg) -- The 99-year-old U.S. estate tax would disappear under a bill approved Wednesday by the House Ways and Means Committee.
The legislation, backed on a 22-10 party-line vote, would benefit about 5,500 families who pay the tax each year plus thousands of others who organize their finances to avoid the 40% tax on estates upon death. It would deprive the U.S. government of $269 billion in revenue over a decade.
The measure stands almost no chance of becoming law under President Barack Obama, who wants higher estate taxes. Instead, it sets down a marker for business groups that have been urging Congress to act and indicates what Republicans might do if they won control of Congress and the White House in 2017.
This tax doesnt just hit the big guy, said committee Chairman Paul Ryan, a Wisconsin Republican, countering Democratic criticisms that the estate tax affects a wealthy few. It hits the little guy - like the small business and the family farm. It is both unwise and unfair, and it needs to go.
Republicans have come close to repealing the estate tax twice in the past 15 years. In 2000, President Bill Clinton vetoed an estate tax repeal bill.
In 2001, President George W. Bushs tax cuts gradually narrowed the scope of the tax and repealed it for 2010 only. Then Congress reinstated the tax at levels that affect far fewer families than the Clinton-era and Bush-era estate tax did.
The tax now applies to estates worth more than $5.43 million per person and $10.86 million per married couple, with those amounts indexed for inflation.
Only about 0.2% of the estates of people who die pay the tax, down from 2.16% in 2000 and 6.47% in 1973, according to the congressional Joint Committee on Taxation.
As Congress has reduced the tax, its become a less important piece of federal revenue. It made up just 0.6% of tax collections in 2014, compared with a post-World War II peak of 2.6% in 1972.
Democrats said the tax combats wealth inequality and described the Republican bill as a gift to the wealthiest American families.
Washington Democrat Jim McDermott called the repeal a massive unfunded tax break for the wealthiest households and disputed Republican characterizations that the estate tax hurts farmers.
You cannot call 23,000 acres a family farm, McDermott said.
The House Republican budget proposal assumes revenue from the estate tax to meet its goal of balancing within a decade. The bill approved by the committee Wednesday doesnt replace the money that would be lost by repealing the tax.
The bill, sponsored by Texas Republican Kevin Brady, is more generous than the 2010 repeal.
Under that version, heirs inherited the cost basis of assets. For example, consider someone who bought stock for $1 million in 1990 and died in 2010 with the stock worth $20 million. They would have owed no estate tax, but their heirs would owe capital gains tax on all value exceeding $1 million when they sold the stock.
Under Bradys bill, the heirs would owe capital gains taxes only on the amount exceeding $20 million and only when they sold it.
Obama, by contrast, in January proposed imposing a capital gains tax on the $19 million gain at death, eliminating what is known as the step-up in basis.
Bradys bill would still impose a gift tax on transfers made during ones lifetime. The existing $5.43 million lifetime exemption, indexed for inflation, would remain, and the rate would be reduced to 35% from 40%.
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