Can Congress Pass a Retroactive Estate Tax Act Later in 2010?

The answer seems to be, “of course.”

Many of us think that Congress will do something to patch-up the estate tax before January 1, 2010 arrives and its time to “throw Momma from the train.” But maybe not. They may wait until well into 2010, maybe even October, or even later, and make the change retroactive to January 1, 2010. Is that constitutional? The answer seems to be “yes.”

Blogging credit to Gideon Alper. Read his post entitled “Estate Tax Repeal in 2010 Not a Big Deal Because Congress Can Pass Retroactive Tax Amendment.”

Here is an excerpt from Gideon Alper’s post describing his interview with Professor Jeffrey Pennell:

“Why Not Just Do It Now? Follow the Money.

So if Congress can amend the estate tax now (or at least pass a one year extension), why would it wait until 2010 and apply a tax retroactively? Three reasons, all about money.

The first is that if Congress passes a long term solution to the estate tax, fixing not just 2010 but all future years, it would have to also reinstate an applicable exclusion amount ($3.5 million for 2009). Otherwise everyone would pay the tax. If the exclusion amount remains at $3.5 million, then the extension would be a revenue loser. Under Pay-Go rules, Congress would have to pay for the exclusion, either by cutting funding somewhere else or raising taxes. A long term estate tax means a long term revenue loser. Congress doesn’t want that. Better to have a short term revenue loser than a long term one.

The second reason is more cynical. I asked Professor Pennell why he thought Congress might wait till next year and pass a retroactive estate tax. He said because 2010 is an election year. Congress would love to deal with estate tax legislation next year. While almost everyone recognizes that we’ll have some sort of estate tax, special interest groups disagree on the applicable rate and applicable exclusion amount. These groups will donate to congress members to encourage them to vote their way. Congress members want these contributions next year when people are up for reelection. Both sides would benefit from delaying legislation.

The third reason is the most cynical at all. As Professor Pennell explained to me, Congress would rather deal with the estate tax frequently than pass a long term solution. Through a series of retroactive amendments and short term extensions, Congress could set itself up to address estate tax legislation every election year. That means that those same special interest groups would, on each of those election years, once again round up contributions in support of their position.

So it’s okay if Congress does nothing this year. The estates of people who die in 2010 can still be taxed. In fact, expect to hear about estate tax legislation for years to come.”

For extra credit:
Here is the SCOTUS case which holds that a retroactive estate tax change is constitutional: United States v. Carlton (1994).