House Approves Proposal to Phase Out ‘Death Tax’

The House on Friday easily approved a Republican-sponsored bill to phase out estate taxes over the next decade, signaling momentum for the repeal effort.

Despite a vow by President Clinton to veto the measure as too costly, 65 Democrats joined a solid bloc of GOP supporters in passing the bill, 279 to 136, and sending it to the Senate.

Republican leaders noted that the vote was large enough to override the threatened White House veto and said that the margin demonstrates the political unpopularity of what they call the “death tax.” But Democratic leaders expressed confidence that they could persuade enough of their House members to change their votes to sustain a veto.

The bill as currently written faces an uncertain fate in the Senate, with the chamber’s top Democrat vowing to work against it.

Still, with an election looming and some Democrats clearly eager to join the GOP crusade against the tax, room for compromise may exist. Clinton, for his part, said he is willing to work with Republicans on reducing, but not repealing, the tax.

The inheritance tax now applies to estates worth more than $675,000 for an individual (though that figure is scheduled to rise to $1 million by 2006). The tax rate on these estates follows a sliding scale, ranging from 37% to 55%.

The House measure would phase out the tax gradually, beginning next year, and eliminate it in 2010.

The bill would reduce tax collections by $105 billion during the 10-year phaseout and, according to Clinton, cost the government $750 billion in the decade after repeal.

According to government figures, 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.

Democratic critics contended that these figures show the bill primarily would benefit a small, wealthy segment of the population. But Republican supporters argued that the threat of the tax forces people to do costly estate planning to create trusts to reduce or eliminate what their heirs will owe the government. And, they said, the bill will help families hold on to small businesses and farms that often must be sold by heirs of deceased owners to pay inheritance taxes.

“This truly is a historic day,” said Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee. He called the tax “the wrecking ball of a life’s worth of achievement and success.”

He added: “This isn’t a rich-against-the-poor issue. This is a jobs issue and a fairness issue.”

But Rep. Thomas H. Allen (D-Maine) lamented: “Here we go again. Another week, another irresponsible Republican tax cut.”

Clinton said that he shares concerns about the effects of estate taxes on family farms and small businesses. But he contended that the GOP measure would cost the government billions of dollars a year “just as the baby boom generation begins to retire, putting at risk our ability to extend the life of Medicare and Social Security, pay down the debt and meet other important national priorities.”

In a letter he sent to House Speaker J. Dennis Hastert (R-Ill.) before the vote, Clinton said: “If you send me a bill to completely repeal the estate tax, I will veto it rather than risk the fiscal progress that has contributed to the longest economic expansion in history.”

A Democratic alternative to raise the exemption level for the tax to $1.1 million next year and cut rates by 20% was rejected, 222 to 196.

Supporters of the GOP-sponsored bill said that they think it would be especially welcomed by Californians, given that surging home prices and the explosion of high-tech jobs offering high pay and stock options is increasing the value of estates there. Indeed, 12 of California’s 28 Democratic House members supported the measure.

The legislation is similar to a provision in the sweeping $792-billion tax-cut package pushed through Congress last year by Republicans but vetoed by Clinton. This year, Republicans have broken out pieces of that larger tax measure, hoping at least a few tax cuts can be enacted. Along with the bid to repeal estate taxes, a bill to reduce the so-called marriage tax penalty was approved by the House and is pending in the Senate.

Rep. Christopher Cox (R-Newport Beach), who could not find even one co-sponsor for a bill to eliminated estate taxes in 1993, said he remains optimistic that Clinton, despite his veto threat, will sign the measure if it reaches his desk,

“The gathering momentum behind repeal of the death tax is the result of the increasing realization of where the burden of this tax falls,” Cox told his colleagues. “It does not fall on the dead rich person. . . . The real burden of this falls on the low-wage worker who pays a tax rate of 100% when he or she loses a job because that medium-sized business or small business . . . has to be liquidated in whole or in part to pay” estate taxes.

John Czwartacki, spokesman for Senate Majority Leader Trent Lott (R-Miss.), said that he believes there are “certainly enough votes to pass a significant rollback” of the estate tax in the Senate. But he was less certain about whether there are enough votes to repeal it.

Senate Minority Leader Tom Daschle (D-S.D.) said that Democrats would fight repeal because it would give a “huge tax break to the richest of the rich.” Daschle said that he likes the alternative offered by House Democrats.

“If [Republicans] want the accomplishment, they’re going to have to compromise,” Daschle said.

During the House debate, the bill’s supporters sought to rebut Democratic claims that repealing the tax largely would benefit the wealthy. They cited the bill’s support from groups representing farmers and small businesses, including the U.S. Hispanic Chamber of Commerce.

Rep. Gary G. Miller (R-Diamond Bar) read a letter from Upland constituent Todd M. Kolber, who complained about the nearly $1 million in taxes he paid--more than 50% of the estate of his father, a physician.

“Families should not have to worry about the undertaker and the tax man on the same day,” Miller said.

Among Democrats who supported the bill, Rep. Zoe Lofgren of San Jose said in an interview she worries that in California the tax increasingly is affecting “basically middle-class people” who own homes that have escalated in value.

Rep. Ellen O. Tauscher (D-Pleasanton), who also supported the bill, disputed claims that the bill largely would benefit the rich. “Very wealthy people spend a lot of money on estate planning. They don’t pay estate taxes,” she said in an interview.

But Rep. Charles B. Rangel of New York, ranking Democrat on the House Ways and Means Committee, said that the GOP bill goes too far in addressing difficulties posed by estate taxes. “It’s absolutely remarkable how, if [Republicans] find a mosquito, they have to run for a sledgehammer to get rid of the problem.”

Along with Lofgren and Tauscher, other California Democrats voting for the measure were Joe Baca of Rialto, Lois Capps of Santa Barbara, Gary A. Condit of Ceres, Calvin M. Dooley of Visalia, Anna G. Eshoo of Atherton, Sam Farr of Carmel, Tom Lantos of San Mateo, Matthew G. Martinez of Monterey Park, Loretta Sanchez of Garden Grove and Mike Thompson of St. Helena.

Among the 24 GOP members of the California delegation, 22 voted for the bill. Reps. Randy “Duke” Cunningham of San Diego and Ron Packard of Oceanside did not vote.

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(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Death and TaxesA Republican-backed bill to repeal inheritance taxes passed in the House Friday, but President Clinton, citing revenue losses, has threatened a veto. Here is a breakdown of the two bills to repeal the estate tax.

GOP Plan

Estimated cost: $105 billion over 10 years.

2001: The top tax rate of 55% and a 5% surtax on large estates is repealed.

2002: Rates over 50% repealed.

2003-2006: 1 percentage point reduction in all rates.

2007: 1.5 percentage point reduction in all rates.

2008-2009: Rates reduced by 2 percentage points each year.

2010: All remaining rates repealed.

Democratic Plan

Estimated cost: $22 billion over 10 years.

2001: All rates reduced by 20% in 2001, dropping top 55% rate to 44%.

Current $1.3 million exemption for farms and small businesses raised to $2 million.

Current $675,000 exemption for all others raised to $1.1 million, then $1.2 million in 2006.

Credit for state estate taxes repealed, but deduction allowed

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Sources: Compiled from AP wire reports; Democratic staff, House Ways and Means Committee