WASHINGTON – Senators voted Thursday to reject an effort to abolish taxes on inherited estates during an election year with control of Congress at stake.
GOP leaders had pushed senators to permanently eliminate the estate tax, which disappears in 2010 under President Bush's first tax cut, but rears up again a year later.
A 57-41 vote fell three votes short of advancing the bill. Senate Majority Leader Bill Frist, R-Tenn., said the Senate will vote again this year on a tax that opponents call the "death tax."
"Getting rid of the death tax is just too important an issue to give up so easily," he said.
A small group of senators, knowing Republicans lacked the votes to eliminate the tax, had hoped to keep the issue alive with an agreement to remove the tax from smaller estates and lessen the hit on larger ones.
Frist had given the negotiators a lift by agreeing to give such a compromise a vote. That didn't give the tax's strongest critics enough support to maneuver the issue around Democratic opponents, however.
"The estate tax is an extremely costly tax for a wealthy few that comes at the expense of every other American born and yet to be born for decades to come," said Senate Minority Leader Harry Reid, D-Nev.
Sen. Max Baucus, a Democrat who favors repealing the tax, had warned that negotiators working on a compromise needed more time. He said he hoped the vote would drive senators back to those talks.
Under current law this year, the first $2 million of a person's estate or $4 million of a couple's, escapes taxation. The remainder can be taxed at rates up to 46 percent.
According to the most recent statistics available from the Internal Revenue Service, 1.17 percent of people who died in 2002 left a taxable estate.
Sen. Jon Kyl, R-Ariz., had been brokering a compromise among Republicans and Democrats interested in paring down the tax and rewriting the quirky law that kills and resurrects the tax.
He proposed exempting the first $5 million of an individual's estate, or $10 million of a couple's, from taxation. The size of estates escaping the tax would increase each year to keep pace with inflation.
Estates between $5 million and $30 million would be taxed at rates equal to capital gains, and the remainder would be taxed at 30 percent.
"That is a fair way to help the people at the lower end of the spectrum and yet collect the revenue from those very, very wealthy estates that we all agree can pay part of this estate tax," Kyl said.
That effort attracted some of the senators who had been wary of repealing the tax but agreeable to shrinking its impact on heirs, but it did not attract enough Democrats who had expressed interest in negotiating a deal.
Two Republicans, Sen. Lincoln Chafee of Rhode Island and Sen. George Voinovich of Ohio, broke with their party.
"Repealing the estate tax during this time of fiscal crisis would be incredibly irresponsible and intellectually dishonest," Voinovich said.