A recent report released by the Center on Budget and Policy Priorities argues that H.R. 8, the bill that would phase in a complete repeal of federal estate and gift taxes, may cost far more than anticipated, perhaps even reaching as much as $1.3 trillion in the decade after repeal.

Because H.R. 8 relies on "backloading"—postponing repeal until 2011 and lowering rates slowly in the meantime—the true cost is hidden. In fact, the cost will double between the fifth and ninth years, increase by 50% from year nine to year ten, and continue to increase thereafter. In the following decade, the report estimates, the cost could be more than seven times that of the first ten years ($186 billion).

Ways and Means Democrats have criticized H.R. 8 as allowing wide-spread tax evasion once the repeal of estate taxes is fully phased-in. The Joint Committee on Taxation has acknowledged that this is a problem, but the bill takes some measures to combat tax avoidance.

If the estate tax is repealed under H.R. 8, it will include a repeal of the current step-up in basis for assets transferred at death. Currently, for an asset transferred at death by a decedent, the basis in the hands of the recipient equals the asset's fair market value at the time of the decedent's death. Under H.R. 8, the asset's basis will carry over from the decedent to the recipient. However, the decedent's estate would be allowed to increase the basis of assets by up to $1.3 million and by an additional $3 million for transfers to a surviving spouse. This system leaves room for clever methods of income tax avoidance.

To combat this, the bill would prohibit property from being eligible for a basis increase if:

It was acquired by the decedent by gift (other than from the spouse) during the three-year period before his or her death;
It constitutes a right to receive income in respect of a decedent;

It is stock or securities of a foreign personal holding company;

It is stock of a domestic international sales corporation, of a foreign investment company, or of a passive foreign investment company.