House Votes to Make Repeal of Estate Taxes Permanent

WASHINGTON -- The Republican push to rewrite tax laws returned to one of its favorite targets Wednesday, as the House approved a permanent repeal of estate taxes.

Under current law, the tax is gradually diminishing, with full repeal occurring in 2010. But the repeal expires Jan. 1, 2011, prompting an American Farm Bureau lobbyist to remark: “It’s pretty silly to say that if you are ‘fortunate enough’ to die in 2010, your heirs can inherit your estate without having the federal government take a big chunk of it. But if you live to 2011 and beyond, your heirs are just out of luck.”

After the 264-163 vote, President Bush urged the Senate to follow suit, calling repeal of the tax an “important step toward increasing fairness in the tax code and promoting economic security.”

But the measure appears short of the votes needed to pass the Senate, in part because of concerns about the burgeoning federal budget deficit.

Sen. Charles E. Grassley (R-Iowa), chairman of the Finance Committee, said: “Right now, I think it would be difficult to get the 60 votes” needed to overcome an expected Democratic-led filibuster.

Supporters of a permanent repeal, however, were encouraged by Wednesday’s House vote, noting that the bill passed by a larger margin than a similar measure last year. The estate tax -- which now carries a maximum rate of 49% -- applies to estates worth more than $1 million for an individual. That figure is due to rise to $1.5 million in 2004 and $3.5 million in 2009.

In 2000, the most recent year for which figures are available, 52,000 estates paid the tax, including 8,365 in California, more than any other state, according to the Treasury Department.

Rep. Christopher Cox of Newport Beach and other Republicans have pushed for more than a decade to repeal the so-called death tax.

In a statement issued after the vote, Rep. Ken Calvert of Riverside said: “Repeal of the death tax will create and keep more jobs and make it easier for parents to hand down their businesses and farms for generations to come -- a cherished part of the American dream.”

But House Minority Leader Nancy Pelosi (D-San Francisco) said: “The Republicans are [on a] reckless tax-cutting binge.... They do it on a weekly basis without any sense of what it does to plunge our children into indebtedness.... The Republicans’ intentions are clear.... They’re proud of the shrinking of government ... and critical to it is to reduce the tax base.”

The estate tax battle spotlights the larger ideological conflict in Congress on whether more tax cuts should be made.

House Republicans already are looking ahead to other possible tax cuts, such as rolling back a tax on beer and permanently extending a tax credit for research and development.

“There are a lot of members who have concerns about individual sections of the tax code, and there’s no telling when any one of those members might get a critical mass” of support for a specific tax cut, said Rep. Jim McCrery (R-La.).

Robert Bixby, executive director of the Concord Coalition, an Arlington, Va.-based budget watchdog group, said the House vote “signals the beginning of a long and politically divisive struggle” over whether to make permanent other recent tax cuts that include so-called sunsets, or expiration dates.

Several of the key provisions in the $350-billion tax cut and spending package are due to expire after a few years. The expiration dates kept down the cost of the law -- enabling it to pass the Senate -- but most lawmakers expect the cuts to be extended.

During Wednesday’s debate, Democratic critics of the estate tax repeal contended that it primarily would benefit a small, wealthy segment of the population.

“You’ve got a few, very, very rich people who would like to get away without paying their fair share of what it takes to keep America great,” said Rep. Pete Stark (D-Hayward.).

But supporters of the tax’s repeal argued that it affects many taxpayers -- especially those owning family farms and small businesses -- who often spend thousands of dollars on estate planning to reduce or eliminate what their heirs will owe the government.

“You shouldn’t have to visit the IRS and the undertaker on the same day,” said Rep. John Sullivan (R-Okla.).

Contending that families have been forced to sell their businesses to pay the tax, Rep. Jennifer Dunn (R-Wash.) said: “Without the permanent repeal, the death tax might very well become the kiss of death for small businesses and farms.”

Opponents of permanent repeal contended that the measure would take effect just as baby boomers are retiring, taking away money needed by the government to shore up Social Security and Medicare. The Center on Budget and Policy Priorities, a liberal think tank, projects the repeal would result in a tax revenue loss of about $820 billion between 2014 and 2023.

Supporters of the repeal say the economic growth it would stimulate would offset such tax losses.

Forty-one Democrats broke ranks with party leaders and joined 223 Republicans in voting for the repeal.

Four California Democrats voted for the repeal -- Dennis A. Cardoza of Atwater, Calvin M. Dooley of Hanford, Sam Farr of Carmel and Mike Thompson of St. Helena -- as did all of the state’s Republicans who were present. Reps. George P. Radanovich (R-Mariposa) and Zoe Lofgren (D-San Jose) were absent.

An aide to Rep. Jane Harman (D-Venice), who last year voted for the repeal but opposed it Wednesday, said she changed her vote because of the “changed economic circumstances of the country.”

Democrats pushed an alternative that would prevent 99% of estates from being taxed by raising the estate exemption to $3 million for an individual, beginning in January. That proposal was rejected, 239 to 188.

John J. Pitney Jr., a professor of government at Claremont McKenna College, said Republicans have much to gain politically and little to lose from their drive to repeal the estate tax.

“If the Senate passes it, the Republicans can claim credit for tax relief,” he said. “If it stalls in the Senate, Republicans have an issue for the fall of 2004.”