1st Session - 109th Congress - Winter 2005


*   Reps. Kenny Hulshof, R-Mo., and Bud Cramer, D-Ala., have introduced a bill to permanently repeal the estate tax.  As a sponsoring member of the Family Business Estate Tax Coalition, AMT supports this legislation.  In the last Congress, with the support of President Bush, similar legislation was passed by the House of Representatives during the last Congress, but stalled in the Senate.  Chances for action in this Congress have improved with a four-seat GOP gain in the Senate. 

Under AMT-backed legislation enacted in 2001, the federal death tax exemption amount has increased to $1.5 million and the tax rate itself has dropped to 47%.  Additionally, the 2001 law puts the country on a path to total repeal of the death tax in 2010.  However, due to arcane budget rules applicable to the budget reconciliation process, the death tax will reappear in 2011 (at its pre-2001 levels) if no further action is taken by Congress. 

*   President Bush’s top domestic priority this year is a massive overhaul of the social security system, which in 2018 will begin taking in less in payroll taxes than it pays out in benefits and, in 2042, will not collect enough money to cover retiree benefits payments.

President Bush proposes allowing younger workers (those born in or after 1950) to begin placing up to 4% of their 12% employee/employer payroll taxes into personal accounts, which would presumably earn a higher rate of return than their current payroll tax contributions, resulting in more money being available to them upon their retirement than they would otherwise receive from social security and would allow them to pass on to their heirs any funds left in their personal accounts when they die.  Their guaranteed benefits would be reduced proportionately.

The social security benefits of current retirees and of those born before 1950 would be untouched.  Congress also needs to adjust future benefits and/or the payroll tax system to eliminate the 2042 short fall.  President Bush has indicated that all options are “on the table,” except for a payroll tax increase.  House Ways and Means Committee Chairman Bill Thomas has floated the idea of looking beyond the payroll tax as a funding mechanism for Social Security.  Congressional Democrats are almost universally against the Bush personal accounts proposal, and several liberal groups have begun airing TV ads against it.

*  President Bush has appointed a nine member advisory panel to recommend a revenue neutral tax reform proposal to the Treasury Department by July 31st.  Former Senators Connie Mack (R-FL) and John Breaux (D-LA) will chair the panel.  Key proposals the panel will consider will be tax-free savings accounts for individuals and expensing/depreciation reform for businesses.  Former Cong. Bill Frenzel (R-MN), who is honorary co-chair of the Center for Strategic Tax Reform (CSTR) of which AMT is a founding member, is a member of the panel.

* The European Union (EU) has finally agreed to terminate the 14% punitive tariffs against U.S. machine tool and other exports to Europe that were imposed as retaliation against the Foreign Sales Corporation (FSC-ETI) export tax benefit, which Congress repealed last year.  The EU says that it will rebate tariffs collected in January 2005.  The Europeans, however, still object to FSC-ETI transition rules enacted by Congress last year.  They filed a legal action with the World Trade Organization (WTO) asking it to review the rules.  If the WTO finds in the EU’s favor later this year, the 14% will resume for 60% of the products on the original retaliation list.  It’s still up in the air as to whether machine tools will be included.