House OKs Estate Tax’s Full Repeal

The Republican-led House on Thursday approved President Bush’s proposal to permanently repeal the estate tax, setting the stage for a much tougher fight on the issue in the Democrat-controlled Senate.

The bill, a top goal of the politically powerful farm lobby, would extend the estate tax repeal that was approved last year as part of Bush’s sweeping $1.35-trillion, 10-year tax cut plan. Under that law, the estate tax gradually decreases before ending in 2010. But on Jan. 1, 2011, the tax would return to its 2001 rates, under which the largest estates would face a 55% levy.

Senate Democratic leaders oppose the push to permanently repeal the tax, saying the government cannot afford expanded tax cuts at a time when budget deficits have returned and are growing.

Still, the political momentum behind the bill is strong enough that Senate Majority Leader Tom Daschle (D-S.D.) has agreed to hold a vote on it later this month.

Daschle believes he has the votes to block the bill. But the issue poses a tricky political choice for the many Democrats up for reelection this year, especially those from the Farm Belt. Farm and business groups plan a vigorous lobbying campaign on the bill’s behalf among senators, including running political advertisements in states that have competitive Senate campaigns this fall.

Thursday’s House vote underscored the political crosscurrents: 41 Democrats broke ranks with party leaders and joined 214 Republicans and one independent in approving the permanent repeal, 256 to 171. Five California Democrats voted for the repeal, as did all of the state’s Republican House members.

At issue is the inheritance tax paid by heirs. Any estate valued at $1 million or less is exempt, so only a fraction of estates are affected. In 1999, the most recent year for which figures are available, 49,870 estates paid the tax. That included 7,445 in California, more than in any other state.

Even if the repeal bill stalls in the Senate, Republicans are eager to spotlight it and other tax-cut initiatives as they fight to hold on to their slim majority in the House and wrest control of the Senate from Democrats.

“Time and time again we’ve shown tax relief is good policy and good politics,” House Majority Leader Dick Armey of Texas said in a letter to GOP colleagues.

Next week, the House plans to take up permanent repeal of the “marriage penalty,” a quirk in law that often causes married couples filing jointly to pay more taxes than if they filed as individuals.

The tax cut law passed last year would reduce the marriage penalty during the next decade. But as with the estate tax, these cuts expire in 2011.

“Republicans hope to use the [tax cut] issue to mobilize their base, particularly in farm states,” where they will focus on the estate tax, said Marshall Wittmann, a political expert at the conservative Hudson Institute think tank in Washington.

Farmers and owners of small businesses particularly are strong proponents of ending the estate tax because, in some instances, heirs have had to liquidate family farms or businesses to pay the levies.

Tim Hammonds, president and chief executive of the Food Marketing Institute and chairman of a coalition called Americans Against Unfair Family Taxation, said permanent repeal would free more than 5 million family businesses and households “from the burden of spending billions of dollars a year in estate planning and special life insurance to avoid or cover the tax. And it frees those billions [of dollars] to stimulate the economy at a time when we need it most.”

Unless Congress makes the repeal permanent, a GOP report on the bill says, “those who are fortunate enough to die in the year 2010 will pay no estate tax, while the unfortunate individual who lives one extra day and dies on Jan. 1, 2011, will face a devastating estate tax of up to 55%.”

Government estimates show that permanently repealing the estate tax would cost the U.S. Treasury about $25 billion in 2011, increasing to $56 billion in 2012.

The liberal Center on Budget and Policy Priorities projects that the government would lose about $740 billion in revenue from 2013 to 2022, but Republicans contend that economic growth from repeal would make up for lost revenue.

“Only in our government are you given a certificate at birth, a license at marriage and a bill at death,” Rep. Sam Johnson (R-Texas) said in arguing for the repeal bill.

Opponents included Rep. Henry A. Waxman (D-Los Angeles), who said the measure would primarily benefit a small, wealthy segment of the population.

“This bill is not about protecting family farms and small businesses, it’s about doing favors for well-connected campaign contributors, like [former] Enron CEO Ken Lay,” Waxman said.

Rep. Brad Sherman (D-Sherman Oaks) suggested it would be unpatriotic to permanently repeal the estate tax. “It would seem to me that, if we are going to ask for sacrifice, it should include asking the wealthiest one-half of 1% of Americans to pay taxes as they have even under Ronald Reagan.”

Democrats proposed an alternative that would have raised the estate exemption to $3 million for individuals and $6 million for couples by the beginning of next year. But that measure was rejected.

The California Democrats who voted for the permanent repeal were Lois Capps of Santa Barbara, Gary A. Condit of Ceres, Calvin M. Dooley of Visalia, Jane Harman of Venice and Mike Thompson of St. Helena.