On Nov. 14, the Senate Finance Committee dedicated time to a hearing to investigate uncertainty in estate tax law, despite a plethora of more pressing fiscal issues facing the current Congress. In their opening statements, both Sens. Max Baucus (D-MT) and Charles Grassley (R-IA) expressed their personal support for estate tax repeal, but Baucus went on to acknowledge repeal is not part of the discussion any more in the Senate. Most outside observers rule out estate tax repeal as well. Mark Bloomfield, president of the American Council for Capital Formation, who has lobbied for repeal, told Bloomberg News, "I don't think complete repeal has the votes, has not had the votes for a few years and won't have the votes in the future." The hearing featured a star witness, billionaire Warren Buffett, whose fortune from business and investments is estimated at $100 billion dollars, making him the third-richest man in the world. Buffett made clear his belief the estate tax should not be repealed or drastically reformed. Such changes, Buffett said, would help the richest Americans who have seen their wealth take off like a "rocket ship" in the last two decades while lower-income workers have "been on a treadmill," not improving their standing. Buffett also believes the estate tax is an integral part of our country and our government system, saying "a meaningful estate tax is needed to prevent our democracy from becoming a dynastic plutocracy." Some familiar hyperbole surrounding the estate tax was expressed at the hearing. Grassley asserted at one point that "As most people are not privy to exactly when they will hand over half of everything they own to the government, the death tax is fundamentally not fair." Mr. Buffett reminded the Committee the vast majority of people will not hand anything over to the government upon death, noting that of 2.4 million Americans who died last year, roughly 12,000 paid estate tax. "You'd have to attend 200 funerals to be at one" where an estate tax was owed, he said. Mr. Buffett also pointed out the vast majority of families who are not subject to the estate tax benefit from a step-up in basis for the assets they inherent. This means the appreciation of any asset is inherited tax-free. Mr. Buffett also addressed the contentious claim the estate tax might bankrupt a farm or small business at some point. A business large enough to owe the estate tax, Buffett said, could readily borrow against the value of the farm or business, use operating revenues to pay off that debt and still generate plenty of income. "[Those farms and businesses] may not prefer to pay the tax, but they have the resources, ample resources to pay the tax." Buffett proposed adjusting the estate tax exemption levels slightly, but increasing the tax on extremely large estates to arrive at a revenue neutral reform option. He thought the money generated by the estate tax should be dedicated to funding a tax credit for the 23 million households who live on $20,000 or less a year in income, to help make their lives easier. In a sign most committee members hold the estate tax as a very low priority, some senators could not resist taking the opportunity to ask Buffett his views on other tax matters that may come before the Finance Committee. Buffett was quizzed by Grassley on his position on the carried interest tax loophole (he supports closing it despite having benefited from it himself for a dozen years), and the tax-exempt status of philanthropic foundations and university endowments (he believes those institutions should pay out more each year than they currently do). He was also asked about a consumption-based tax system by Sen. Ron Wyden (D-OR), responding, "I don't see how we get there from here." The table below shows why the only bipartisan consensus on the estate tax issue is that something should be done in the next couple of years. The 2001 Bush tax cuts put in place an annually changing schedule for the estate tax, creating uncertainty and unnecessarily high planning costs for a few large estates. In 2007 and 2008, $4 million per couple ($2 million for individuals) will be exempt and only assets above that exemption will be taxed, up to a top tax rate of 45 percent. In 2009, the exemption level will rise to $7 million for couples ($3.5 million for individuals). In 2010, the estate tax is to be fully repealed for one year at a cost to the government of roughly $20 billion. The tax is scheduled to return in 2011 to the way it was prior to the 2001 tax cuts, with a top rate of 55 percent on estates worth more than $2 million per couple. While no legislative action is expected on the estate tax for the rest of the year, Baucus said he plans to introduce a bill reforming the tax for markup sometime this spring. It will be interesting to see what Baucus proposes, if anything, in view of the deep divide within the Senate on the issue. In 2006, the Senate rejected GOP proposals to end the estate tax as well as an amendment by Sen. Jon Kyl (R-AZ) to reduce the estate tax rate to 15 percent. At the same time, a Democratic proposal to bring the rate down to 30 percent was also rejected.