As of January 1, 2010, the federal estate tax falls to 0 percent. Unfortunately, as of Jan. 1, 2011, it returns to a top rate of 55 percent.

From The Blog of the Legal Times, “Estate Tax Battle Looms in 2010“:

“I think we all were really hopeful that everyone would come together and find that sweet spot that everyone could accept,” said Dena Battle, director of tax policy for the National Association of Manufacturers.

In the new year, lobbyists expect a rare effort to retroactively tweak the tax, which many are prepared to fight. . “I think there is going to be a significant effort to try and get this matter resolved early on,” Battle said. Chris Walters, manager for legislative affairs for the National Federation of Independent Business, said that “any tax increase that’s retroactive is unacceptable.”

USA Today reports taxpayers may be surprised to find that many estates are now taxed as capital gains. From “Estate tax set to expire Thursday“:

In the meantime, what might seem like a potential tax savings has become a guessing game for taxpayers, accountants, estate planners and tax lawyers. The impasse also could mean capital gains taxes on more inheritances.

“No one believed that Congress in its ultimate wisdom, with all the deficits looming, with a recession and two wars … would ever allow the estate tax to lapse. But that’s what’s happening,” said Martin Press, a tax attorney in Fort Lauderdale. “It’s created great uncertainty.”

Yes. Great, great uncertainty — and life-and-death consequences. From The Wall Street Journal, “Rich Cling to Life to Beat Tax Man“:

“I have two clients on life support, and the families are struggling with whether to continue heroic measures for a few more days,” says Joshua Rubenstein, a lawyer with Katten Muchin Rosenman LLP in New York. “Do they want to live for the rest of their lives having made serious medical decisions based on estate-tax law?”

UPDATE (6 p.m.): The expiration has definitely changed individual behavior, as witness USA TODAY’s founder, Al Neuharth, who writes a column, “For old, sick, rich is 2010 year to die?”:

In anticipation of the long-awaited death of the death tax, some at-risk people postponed some things until 2010. I know one person (me) who delayed until next week elective knee surgery (on both knees) that doctors recommended several years ago.

The odds are against my demise from that now rather-common surgery. But I decided to wait because I’ve carefully planned how to preserve in every way possible as much as possible of my little nest egg, not just for my wife but also for my eight children and two grandchildren.

Governor-elect Bob McDonnell of Virginia has already taken a strong stance in support of the state’s workers, consumers and manufacturers by pushing the Department of Interior to expedite development of natural gas and oil resources on the Outer Continental Shelf (OCS). Writing that “Virginia is eager to get started,” McDonnell on Dec. 23 sent a letter to Secretary of Interior Ken Salazar asking that the state remain on the current five-year OCS leasing plan and that federal administrative process move forward immediately with Lease Sale 220, an area more than 50 miles off the coast of Virginia estimated to contain 130 million barrels of oil and 1.14 trillion cubic feet of natural gas.

From the governor-elect’s letter:

Any effort to remove or delay Virginia’s participation in the lease sale would significantly hamper our efforts to create jobs, eliminate much-needed new revenue, and undermine support for President Obama’s stated commitment to make the United States more energy secure.

The opportunity to explore and develop oil and natural gas resources off the coast of Virginia, miles out of sight from our beaches in an environmentally sound manner, is timely for both our nation and our Commonwealth. Like every other state, Virginia is struggling with the high unemployment that accompanies the current tough economic environment. Some parts of our state have an unemployment rate as high as 19 percent. Additionally, America needs secure and diverse energy sources that do not leave us dependent on foreign governments adverse to our national interests.

Governor-elect McDonnell makes his Administration’s goals — upon which he specifically, prominently campaigned  – quite clear to Secretary Interior and the public.

Offshore energy exploration and production will be a priority in my administration. I would like to work with you and the President to make Virginia an international leader in offshore energy exploration and production on the Atlantic coast. It is important for both our Commonwealth and our country. We also intend to aggressively pursue offshore renewable energy sources such as wind farms, and will be asking for your assistance at that appropriate time.

That’s welcome leadership on behalf of smart energy policy and economic growth.

See also news coverage:

• Wall Street Journal blog, “Drill, Baby, Drill: Does Virginia’s Gov-Elect’s Call For Offshore Drilling Add Up?“
• Washington Business Journal, “Bob McDonnell urges offshore drilling for Virginia“
• Richmond Times Dispatch, “Hasten offshore lease sale, McDonnell urges White House“

The slowest week of the year for Washington, D.C., political and government activities. Congress is out, President Obama is in Hawaii, and somewhere, sometime flights will be disrupted, somehow.

Friday is the New Year’s holiday, and the NAM closes at noon Thursday.

The Senate returns at noon Tuesday, Jan. 5, for a pro forma session to start the second session of the 111th Congress, and then reconvenes Jan. 19. The House convenes Jan. 12.  In the meantime, look for positioning on the competing versions of legislation to expand the federal government control’s of health care.

Senate Hearings: There is one. Sen. Arlen Specter (D-PA) fills a news hole by convening a field hearing today in Philadelphia of the Judiciary Committee Subcommittee on Crime and Drugs, “Federal Efforts to Address Witness Intimidation at the State and Local Level.”

Economic Reports: The Conference Board’s issues its index of December consumer confidence on Tuesday. Also Tuesday we’ll see the October S&P/Case-Shiller home price index. On Wednesday, the Institute for Supply Management-Chicago’s December index of business activity in the U.S. Midwest region is set for release. For more, see this Reuters’ report, and Washington Post’s This Week report.

Amid the health care and debt debates on Dec. 24, the Senate conducted a bit of low-profile but welcome business, sending back to the White House a number of controversial nominees made by President Obama.

Included in the list of too-hot-to-touch nominees is Craig Becker, counsel for the Service Employees International Union nominated to serve on the National Labor Relations Board. Becker has proposed a radical shifting of employee-employer relations to force unionization of workplaces. The National Association of Manufacturers formally opposed his nomination.

Despite Becker’s outside-the-mainstream views, the Senate Health, Education, Labor, and Pensions Committee confirmed his nomination without even holding a hearing to hear Becker’s testimony. Sen. John McCain (R-AZ) subsequently put a hold on Becker’s nomination.

Here’s the Senate’s rejection of the nominee made via a procedural move as reported on page S14139 of The Congressional Record:

ORDER FOR NOMINATIONS RECEIVED
Mr. CARDIN. As in executive session, I ask unanimous consent that all the nominations received by the Senate during the 111th Congress, first session, remain in status quo, notwithstanding the December 24, 2009, adjournment of the Senate, and that the provisions of rule XXXI, paragraph 6, of the Standing Rules of the Senate, with the following
exceptions: PN1119, COL David Teeples; Calendar No. 32, Dawn Johnsen; Calendar No. 205, Mary Smith; Calendar No. 312, Christopher Schroeder; Calendar No. 488, Edward Chen; Nos. 491 and 492, Craig Becker, and Calendar No. 579, Louis Butler.
The PRESIDING OFFICER (Mr. PRYOR). Without objection, it is so ordered.

The Washington Post briefly reported the Senate’s action at its Federal Eye blog. Edward Hopson at the Wyatt Employment Law Report also notes Becker’s problems and reports that the other two nominees to the NLRB — former Republican Senate staffer Brian Hayes, and Buffalo, N.Y., labor lawyer Mark Pearce — were not voted on by the Senate.

The President can send Becker’s nomination back up to the Senate in 2010, but might we see the first occasion for an Obama recess appointment? In the Bush Administration, Senate rejection prompted recess appointments (see CRS report), but the Obama Administration has yet to take that step in light of the Democratic majority in the Senate.

Whatever the next steps, the Senate’s action is a clear statement from the Democratic majority that the nomination of a top union lawyer with a history of seeking to marginalize employers was politically untenable.

UPDATE 4:40 p.m. The Senate’s action occurred under Rule XXXI, Paragraph 6, of the Standing Rules of the Senate. Also, this Point of Law post covers the Senate’s decision to return the nomination of two controversial judicial nominees, Louis Butler and Edward Chen.

The Senate this morning passed H.R. 3590, The Patient Protection and Affordable Care Act, on a partyline vote, 60-39.

Today’s The Oregonian, anticipating the vote, interviewed the state’s two Demoratic senators, Ron Wyden and Jeff Merkley for a page one story, “Oregon senators see health bill as step, not grand finale.” Excerpts:

“While this bill doesn’t go far enough, it’s a significant stride for millions of people who desperately need health care in our country,” Merkley said Tuesday, adding that he is “still grieving” that the final bill doesn’t include a government-run insurance option.

And …

“Choice and competition are at the heart of this health care reform,” Wyden said Tuesday.  “This bill doesn’t do as much as I would like, but it’s a start, and every step of the way, I will be working to build on that.”

From The Wall Street Journal, “A Comparison of Tax Changes in House, Senate Health Bills.”

UPDATE (4:15 p.m.):

From Forbes.com, “Congress Lets 50 Tax Breaks Expire”

Among the disappearing breaks are the research tax credit and an annual alternative minimum tax “patch,” which keeps 23 million additional middle-income Americans from being forced into calculating and paying the dreaded AMT. (For 2009, with the patch in place, 4 million upper-middle- and high-income families will pay AMT.)

Wasn’t the AMT fix one of the major issues in Congress of 2007, roiling the political waters with claims and counterclaims about tax increases and irresponsible legislating? And it’s just an afterthought this year. Strange.

For manufacturers, the R&D tax credit is a major issue.

For businesses, the lapsing of the R&D credit–a $7 billion a year break–is a particular problem, since companies must plan for long-term research commitments amid uncertainty. Since its enactment in 1981, the credit has been extended 13 times; in the mid-1990s there was a one-year gap when it wasn’t extended retroactively.

“Companies are sensitive to that,” says Monica McGuire, executive secretary of the R&D Credit Coalition in Washington, which represents such research heavyweights as 3M, AT&T, Genentech, Hewlett-Packard, and Xerox. “If Congress is serious about jobs in this jobless recovery, they ought not to treat the credit like a yo-yo,” she adds.The lapse could also affect companies’ reported earnings, since they won’t be able to assume the credit will be extended.

The expiring estate tax is a particularly complicated case, full of questions of life and death and retroactivity. Forbes.com covered the issue in a good story last week, “Congress Throws Estate Plans Into Disarray,” anticipating litigation and administrative nightmares. To say the least.

Megan McCardle, Atlantic Online, “CBO: Democrats Double-Counting Medicare Savings“:

The notion that the health care reform bill would make Medicare more solvent and also expand benefits never made any sense.  The health care reform bill makes cuts to Medicare, and uses them to pay for new spending; to the extent that we think we need to pay for, um, Medicare with cuts to Medicare, this bill actually weakens either the program, or our future budgets.

McCardle does a good job of explaining the complicated budget juggling involving trust funds. Bottom line, as per CBO: “To describe the full amount of HI trust fund savings as both improving the government’s ability to pay future Medicare benefits and financing new spending outside of Medicare would essentially double-count a large share of those savings and thus overstate the improvement in the government’s fiscal position.”

University of Chicago law professor Richard Epstein at PointofLaw.com, “Impermissible Ratemaking in Health-Insurance Reform: Why the Reid Bill is Unconstitutional“:

In effect, the onerous obligations under the Reid Bill would convert private health insurance companies into virtual public utilities. This action is not only a source of real anxiety but also a decision of constitutional proportions, for it systematically strips the regulated health-insurance issuers of their constitutional entitlement to earn a reasonable rate of return on the massive amounts of capital that they have already invested in building out their businesses.

Unconstitutional and full of budgetary flim-flam. Thank goodness the Senate votes early Wednesday. Otherwise Christmas would be ruined.

UPDATE (7:10 p.m.): Sure, hurry up and vote. “WH putting health-care off until …February?“

From Overlawyered.com, a Capitol Hill source reports on the “tort reform” language in the Senate manager’s amendment to the health care bill primarily serves opponents of tort reform:

The “tort reform” section of Senator Reid’s substitute amendment is not merely meaningless, but is actually a significant giveaway to the trial lawyers. It is essentially a 5-year, 50-million dollar grant program to encourage states to develop more plaintiff-friendly alternatives to the current medical liability system.

Previous versions of the bill contained mere “Sense of the Senate” language expressing support for state demonstration projects.

The provisions run from page 344 to 359: “SEC. 399V-4. STATE DEMONSTRATION PROGRAMS TO EVALUATE ALTERNATIVES TO CURRENT MEDICAL TORT LITIGATION.”

Americans for Tax Reform is keeping a list of the tax provisions in the Senate health care bill, a half-trillion-dollars in tax increases, “NEWS: Comprehensive List of Tax Hikes in Reid-Obama Health Bill UPDATED.”

Updated? Oh, yes, here’s what passes for improvement in the bill:

STRICKEN: Tax on Cosmetic Medical Procedures (Page 2045/Sec. 9017/$5.8 bil/Jan 2010): New 5% excise tax on elective cosmetic surgery to be paid by the surgery patient.

REPLACED BY: Tax on Indoor Tanning Services (Page 373 of Manager’s amendment/$2.7 billion/July 1, 2010): New 10% excise tax on indoor tanning salons.

The only game in town, Washington, D.C., this week is the Senate health care debate. And snow removal.

The National Association of Manufacturers is closed today, as are D.C. area offices of the federal government. The NAM will also be closed Thursday and Friday for Christmas.

The Senate convenes at noon today and continues the maneuvering around H.R. 3590, the Patient Protection and Affordable Care Act, the health care bill. Final vote on passage of the bill and its sugar plums is expected Christmas Eve. NAM President John Engler issued a statement Saturday criticizing the Senate’s advancement of the bill, saying it would add costs to manufacturers while limiting employers’ health care options.

President Obama today deliver remarks at the White House about making governments more efficient and effective. OMB Director Peter Orszag attends.  On Tuesday, the President meets with community bankers. The President and his family are expected to spend Christmas in Hawaii.

Senate Hearings: The Senate Judiciary Committee convenes Dec. 24 for a business meeeting to consider bills, most prominently, S. 1624, Medical Bankruptcy Fairness Act.

Economic Reports: The National Association of Realtors on Tuesday reports existing-home sales for November, and the Commerce Department reports new-home sales on Wednesday. Also Wednesday, Commerce releases November data on personal income and commerce. Finally, on Thursday Commerce releases November durable goods orders. (From Washington Post, “This Week.”) OPEC meets Tuesday in Luanda, Angola.