Its Eye on Election, Senate Votes to Repeal Estate Tax

Shrugging at his veto threat, the Senate sent President Clinton a bill Friday that would phase out the decades-old federal tax on inheritances.

The 59-39 vote to abolish the estate tax--a centerpiece of the Republican agenda--fell short of the two-thirds majority needed to pass the bill over Clinton’s objections, and GOP leaders conceded that they are unlikely to muster the votes.

Senate Majority Leader Trent Lott (R-Miss.) applauded the vote on the $105-billion, 10-year estate tax phaseout. “There is no defense for us taxing people at their death, for taking away the fruits of their inheritance . . . or the fruits of their labors.”

But Clinton decried the measure, calling it a “budget-busting bill” that would use too much of the federal budget surplus, primarily for the benefit of the super-rich.

“The Senate is wrong to pass this costly, irresponsible and regressive bill,” Clinton said. “When this bill comes to my desk, I will veto it.”

The bill would reduce estate tax rates over 10 years, with elimination coming in 2010. Projected loss to the government is $105 billion during the phaseout and $750 billion in the decade after the tax is repealed. It would begin cutting estate taxes in 2001--the top rate now is 55%--and phase out all rates by 2010.

The president offered to work with Congress on a less costly alternative that would help family farms and small businesses. But Senate GOP leaders said they want nothing less than to bury the “death tax,” contending that Democrats are increasingly joining their crusade.

The vote was as much about election-year politics as it was about taxes. Both parties saw the debate as a way to frame issues for the fall congressional and presidential campaigns.

Immediately after approving the estate tax repeal, the Senate began considering another measure that Republicans want to use in the campaign. It would eliminate the “marriage penalty,” which forces many married couples to pay more income tax than they would if they filed as single taxpayers.

Nine Democrats--including California Sen. Dianne Feinstein--joined the Republican majority in supporting the inheritance tax repeal. Sixty-five Democrats in the House voted for the bill in June.

Feinstein Says Tax Burden Is Too Much

In breaking with Clinton, Feinstein cited California’s high real estate prices.

“The estate tax is unfair to many residents of my state who never thought, planned or expected to find themselves subject to the estate tax,” she said. “And the simple fact of the matter is that the tax becomes a very large burden.”

“The ball is now in the administration’s court,” Feinstein added, urging Clinton to “work out an acceptable plan to either phase out the tax with reducing rates or to both exempt immediately the bulk of farms and small businesses as well as reducing the rates over the next 10 years.” Her GOP opponent in the November Senate election, Rep. Tom Campbell of San Jose, supported repeal in the 279-136 House vote.

California’s other senator, Democrat Barbara Boxer, voted against repeal.

The tax now applies to inheritances worth more than $675,000, a figure that will rise to $1 million by 2006. Only about 2% of families of those who die pay the estate tax. In 1997, the latest year for which figures were available, about 43,000 estates out of 2.3 million were taxable.

Still, said Sen. Jon Kyl (R-Ariz.), “Everywhere I go, people who . . . will not directly benefit from this repeal are still for it.”

Democrats offered a less costly alternative to raise the exemption for individuals, small businesses and farmers. But that was rejected Thursday on a largely party-line vote of 53 to 46.

Friday’s vote to repeal the tax was applauded by business and farm groups.

“This historic vote is a victory for the American dream,” said Tim Hammonds, president and CEO of the Food Marketing Institute, which represents the supermarket industry. He said the beneficiaries are family businesses that spend billions of dollars on special insurance, accountants, tax attorneys and estate planners just to reduce their tax burdens.

Thomas J. Donohue, president and CEO of the U.S. Chamber of Commerce, urged Clinton to “carefully consider the overwhelming public support for eliminating the death tax. . . . The arm of the government should not reach beyond the grave.”

And Dan Danner, senior vice president of the 600,000-member National Federation of Independent Business, said a veto would send the “wrong message about this administration’s commitment to job growth and economic expansion.”

If Clinton follows through on his veto pledge, Republicans will have to choose between compromising on a more limited estate tax measure or using the veto for political purposes in the fall campaign.

In a tax-cutting frenzy, Republicans added to the estate tax bill a series of other tax cuts that would benefit farmers, high-tech firms, working seniors and other groups. In the end, GOP leaders dropped the other tax cuts to avoid sending the bill to a House-Senate conference committee. An aide to Lott said he expects the other tax measures to be revived.

And GOP leaders said they expect the Senate to approve the $248-billion “marriage penalty” measure after debate on the bill resumes Monday.

Clinton has complained that the Republican “marriage penalty” plan would use up too much of the federal surplus and provide too large a share of the tax cut to couples who do not suffer from the marriage penalty. But he has offered to sign the measure if Republicans approve his Medicare prescription drug plan. So far, GOP leaders have balked at a deal.

Senate Democrats also plan to offer a less costly marriage-penalty relief proposal.

Throughout the week, Republicans have recounted stories, often from their own lives, to illustrate their case for tax relief.

“My daughter knows about the marriage penalty tax because she and her husband are affected by it,” Lott said Friday. “She’s figured out what it’s going to cost her. And she said: ‘Dad, if you don’t do something about this, I may run against you.’ ”

Issue Gives Republicans Election Ammunition

Republicans are eager to showcase the tax cuts at the GOP national convention, where they will nominate their presidential candidate, Texas Gov. George W. Bush, who favors repeal of the tax.

While Republicans want to return a large share of the federal budget surplus to taxpayers, Democrats want to hold on to more of the surplus to pay down the national debt, shore up Social Security and fund programs such as a Medicare prescription drug plan.

The other Democrats breaking ranks with the president were Sens. Patty Murray of Washington, John B. Breaux of Louisiana, Max Cleland of Georgia, Robert Torricelli of New Jersey, Ron Wyden of Oregon, Mary Landrieu of Louisiana, Blanche Lambert Lincoln of Arkansas and Charles S. Robb of Virginia.

GOP Sens. Lincoln Chafee of Rhode Island, James M. Jeffords of Vermont, Arlen Specter of Pennsylvania and George Voinovich of Ohio voted against repeal.