GOP aims to keep tax cut intact in Senate

As the House votes to repeal the estate tax, Senate Democrats whittle on Bush's $1.6-trillion tax cut plan.

©New York Times

© St. Petersburg Times, published April 5, 2001

WASHINGTON -- The House of Representatives voted Wednesday to repeal the estate tax, a big item in President Bush's tax plan, but in the Senate the president's proposal for $1.6-trillion in tax cuts over 10 years appeared to be in jeopardy.

A swing Republican, Sen. James Jeffords of Vermont, indicated that he was prepared to vote against the full tax cut, the president's top legislative priority, and that could mean there are too few votes in the tightly divided Senate to pass it.

The estate tax legislation was the last of the main components of the president's tax legislation to be passed by the House. Under the bill, the tax would not actually be repealed until 2011. Last month, the House approved an across-the-board reduction in income-tax rates, lower taxes for married couples and an expanded tax credit for families with children.

The measure was approved, 274-154. The key vote came a few minutes earlier when, by a vote of 227-201, the House rejected a Democratic alternative that would have eliminated the tax on three-quarters of the estates that would now owe it but would have retained the tax on the very largest ones.

President Bush called the vote "a victory for fairness and a vote for economic growth."

Like so many other votes on tax and spending issues in the House this year, the vote on the Democratic alternative broke mainly along party lines. Only 11 Democrats voted against it, and only three Republicans voted for it. More than 50 Democrats joined nearly all House Republicans in voting for the measure that passed.

At the beginning of the day on the other side of the Capitol, the Senate seemed prepared to approve an outline of the president's budget more or less intact. On a crucial test vote on Tuesday night, Vice President Dick Cheney broke a 50-50 tie to give Republicans a victory. On that vote, only two senators broke party ranks: Lincoln Chafee of Rhode Island, a Republican, voted with the Democrats, and Zell Miller of Georgia, a Democrat, voted with the Republicans.

But Wednesday afternoon, Jeffords, who had been unenthusiastic all along on the Bush tax cuts and who is a strong advocate of more funding for education for the disabled, appeared at a news conference with a group of Democrats who favor cutting taxes by $1.25-trillion over 10 years, halfway between the Republican and Democratic positions.

Jeffords, chairman of the committee with jurisdiction over education, said he was not satisfied with the amount of money Republicans had set aside for education in their budget plan. Asked whether that meant he would vote against a $1.6-trillion tax cut, he answered, "Unless a miracle occurs, I feel I am leaning in that direction."

Later in the afternoon as the Senate continued to consider its budget resolution, Jeffords cast the decisive vote in favor of a Democratic proposal to reduce the 10-year tax cut by $448-billion and shift the money, half and half, to education programs and debt reduction. The measure won preliminary approval.

This vote could well be reversed. And like everything else the Senate does on the budget resolution, it is not by itself conclusive.

Bush's spokesman, Ari Fleischer, said in an interview that Wednesday's Senate vote was "part of an ongoing process." He added, "The Senate will do what the Senate will do."

Budget resolutions are not laws but simply guides to Congress on the direction of tax and spending legislation for the rest of the year. The numbers in budget resolutions are often changed before the final amounts are set.

Still, with the Senate so evenly divided, Jeffords' defection sent Republicans into intense negotiations to try to reclaim their majority and had Democrats gleeful.

Speaking about the $1.6-trillion tax cut, Sen. Tom Daschle of South Dakota, the Democratic leader, declared, "That today is now dead."

Democrats have several other proposals they plan to offer before work on the budget blueprint is completed later this week that would reduce the tax cut to fund popular programs.

Republicans are trying to counter that by proposing to leave the tax cuts alone and fund the extra spending with what they call a contingency fund. Democrats hold that the contingency fund includes money that should be earmarked for Medicare, the health insurance program for the elderly and disabled.

In the House, on the other hand, Republicans are solidly in control. The bill approved Wednesday would gradually reduce estate-tax rates, now as high as 55 percent, and would repeal the tax entirely in 2011. After the repeal, heirs would have to pay capital gains taxes on inherited property.

The measure would cost only $185-billion in the next 10 years, the time period in which cost estimates are made, but the amount of revenue lost would explode after the repeal took effect in 2011.

"It's a gimmick," said Rep. Dick Gephardt of Missouri, the Democratic leader. "This is not an honest tax cut."

Rep. Charles Rangel, D-N.Y., joked, "If you want to protect your estate, don't die for 10 years."

The Democratic plan favored by Gephardt and Rangel would have increased the size of estates exempt from the tax to $2-million next year, $4-million for a couple, and would eventually have increased the exemption to $2.5-million for an individual and $5-million for a couple. It would cost only $40-billion over 10 years.

The exemption is now $675,000, and only 2 percent of estates exceed that. Democrats said that under their plan, three-quarters of estates that are now taxed would become exempt.

But Republicans said complete repeal of what they call the death tax was the only answer. "We all know that if you leave any part of this tax intact," said Rep. Jennifer Dunn of Washington, "this tax will grow back."

The tax is a terrible burden to "small-business owners and family farmers who want to leave a legacy to their children," said Rep. J.C. Watts Jr. of Oklahoma.

Rep. Tom DeLay of Texas, the Republican whip, asserted, "To cure the death tax, you have to repeal it."

The Senate plans to take up the tax legislation next month.

Estate tax affects few Americans

While polls indicate broad support for repealing the estate tax, few Americans are directly affected by it. About 98 percent of descendants avoid taxes altogether because the first $675,000 of an estate is exempt from taxation, an exemption that is due to rise to $1-million by 2006 under current law.

"The Death Tax Elimination Act of 2001," as the legislation is called, would slowly reduce rates so that the top rate in 2010 would be 39 percent instead of the current 55 percent rate. The tax would then be repealed in 2011.

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