GOP Settles for Less as House OKs Estate Tax Cut

The House voted Thursday to cut taxes on inherited estates and relieve thousands of heirs from paying tax collectors beginning next decade.

The 269-156 vote, just a few months before an election with control of Congress at stake, saw majority Republicans temporarily setting aside their goal of abolishing the tax.

Instead, they voted to exempt from taxation individual estates up to $5 million and couples’ estates up to $10 million, while blunting the impact on even richer families. The compromise measure now goes to the Senate.

The White House called the bill “a step in the right direction.”

Congressional tax experts estimated that if the changes became law, only 5,100 estates would face taxation when the changes were fully in effect in the fiscal year beginning Oct. 1, 2011. The Internal Revenue Service levied taxes on more than 30,000 estates in 2004, the most recent figure available.

However, the bill also restores estate taxes in 2010, deleting what had been a one-year reprieve from them under an earlier law.

President Bush and Republicans in Congress have long pressed to abolish the estate tax, contending it is unfair to tax businesses and farms left to the next generation.

“Americans are being taxed almost every moment of their lives. My goodness, when they are dead, do we have to tax them again?” said House Majority Leader John A. Boehner, R-Ohio.

Democrats said it is more unfair to give millionaires a tax cut while denying thousands of poor workers a higher minimum wage.

“This is the ultimate values debate,” said House Minority Leader Nancy Pelosi, D-San Francisco. “It is morally wrong to do this, especially when we are turning down, rejecting, an increase in the minimum wage.”

Bush and Republicans in 2001 had succeeded in killing the estate tax for one year, 2010. But the tax would have reappeared in 2011 at a rate of 55% under Bush’s initial tax cut package.

The House bill would replace that temporary law by reducing, but not eliminating, the estate tax. It responds to a plea for help from Senate GOP leaders, who discovered this month that they did not have enough votes to abolish the tax.

That forced lawmakers to talk compromise, but GOP tax writers, under pressure from the House’s most conservative Republicans, said they wouldn’t negotiate further than the offer made in the bill.

“This is not a first offer. It is the only offer,” said House Ways and Means Committee Chairman Bill Thomas, R-Bakersfield.

The exemptions, $5 million for an individual and $10 million for a couple, would increase automatically each year to keep pace with inflation.

After the exemptions, estates worth up to $25 million would be taxed at rates equal to those on capital gains, currently 15% but scheduled to rise to 20% in 2011.

The remainder of any larger estates would be taxed at rates twice that of capital gains.