On the third effort to submit the legislation that would provide both employment benefits and tax extenders, the Senate failed in a 57-41 vote to attain the required 60 votes for passage. The American Jobs and Closing Tax Loopholes Act of 2010 (H.R. 4213) is now on hold.

The bill combines several separate sections. One section would increase over 40 different tax extenders that have been passed regularly for the past two decades. Another section would extend unemployment insurance for 900,000 individuals who have now reached the limit of their payments. A third section covers various healthcare related programs.

Senate Majority Leader Harry Reid (D-NV) indicated that he was "very disappointed" in the vote. Senate Finance Committee member Olympia Snowe (R-ME) responded that the bill was far from what taxpayers want. Sen. Snowe opposed increasing taxes on Subchapter S corporation shareholders.

The Senate has attempted three different times to reduce the cost of the bill. The initial $200 billion cost had been reduced to approximately $30 billion in the third version of the bill. Tax reductions for the extenders and unemployment benefits were offset in part by increased taxes on hedge fund managers, Subchapter S corporations and international corporations.

Supporters of the bill included Sen. Max Baucus (D-MT). He stated, "For millions of Americans who have lost a job through no fault of their own, the Senate debate on the job extenders bill has been a fight for the unemployment benefits that help keep a roof over their heads."

However, Senate Minority Leader Mitch McConnell (R-KY) pointed out that even the current bill adds "$30 billion to an already staggering $13 trillion national debt." He prefers a proposal that would pass the tax extenders while reducing the deficit.

Editor's Note: Tax extenders have been passed every year for the past two decades. It is still likely that the popular tax extenders could be attached to another bill and passed in September. Even with the short legislative session before the fall campaign and November election, there will be a strong desire to pass the extension of the teachers' expense deduction, the research and development credit, the IRA charitable rollover and many other tax extenders.


Sen. Sanders Proposes Estate Tax Bill

In December of 2009, the House passed an estate tax bill that continued the estate exemption at $3.5 million per person ($7.0 million for a couple). However, the Senate could not agree and the estate tax was repealed on January 1, 2010.

Sen. John Kyl (R-AZ) and Sen. Blanche Lincoln (D-AR) claim they are close to an agreement for an estate tax compromise. Both advocate increasing the exemption to $5 million and reducing the rate to 35%. They believe that they are near the 60 votes needed for a 10-year phased-in plan.

While it has not been publicly released, one version of the proposed Kyl-Lincoln compromise starts with an exemption of $3.5 million and an estate tax rate of 44%. Over a term of 10 years, the amounts are adjusted to a $5 million estate exemption and an estate tax rate of 35%. However, Sen. Max Baucus (D-MT) is not willing to bring the proposed compromise before the Senate Finance Committee for a formal vote.

Sen. Bernard Sanders (I-VT) is an Independent but participates in the Democratic caucus. He has been joined by Sen. Tom Harkin (D-IA) and Sen. Sheldon Whitehouse (D-RI) in introducing a new estate tax bill.

The three senators sent a letter to their colleagues and outlined the reasons for enacting an estate tax increase for Americans with larger estates. Sen. Sanders notes that a wealthy Houston resident named Dan Duncan passed away early in 2010 with an estimated $9 billion estate. If the Senate does not take action, this estate could be transferred to family with a savings of several billion in estate tax.

Total estate tax savings in 2010 for heirs of Duncan and others with large estates are estimated to be $14.8 billion. This amount is lost revenue to the federal government in a time when all possible avenues for raising revenue are being explored.

Sen. Sanders proposes the "Responsible Estate Tax Act of 2010." This act would tax the first $3.5 million of an estate at 45%. Estates over $10 million would be taxed at 50%, with estates over $50 million paying tax at a rate of 55%.

In addition, there would be a "billionaire" surtax of 10%. Sen. Sanders would "protect family farmers" by allowing a Sec. 2032A reduction in farm land for heirs who are actively farming of up to $3 million, an increase over the current $1 million limit. Finally, for estate conservation easements, the exclusion would be increased to $2 million and the base percentage to 60%.

Sen. Charles Grassley (R-IA) did not support the Sanders bill, but suggested that it may have been useful for Sen. Sanders and his supporters to place a plan on the table. He indicated that there are "quiet supporters of the junior senator from Vermont" and they will be influencing the overall result.

Editor's Note: Your editor and this organization take no specific position on any of the estate tax proposals. This information is offered as a service to our readers. The challenge for the Senate is the required 60 votes for passage do not yet exist for any of the proposed compromise bills. It now seems quite possible that the Senate will not act on estate taxes prior to the November election. If that is the case, it is likely that an effort to develop an estate tax compromise will take place in late November.