Battle Lines Drawn Over Estate Tax

With a filibuster looming, Senate Republicans made a final push to permanently repeal the federal estate tax on Wednesday, calling it unfair to family businesses and bad for the economy.
"Taxing people's assets upon their death is just plain wrong," said Sen. Chuck Grassley, R-Iowa, chairman of the Senate Finance Committee.

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Democrats, and several moderate Republicans, say the tax generates much-needed government revenue while affecting less than 2 percent of the nation's wealthiest estates. They are expected to block a vote on the issue later this week.

An initial vote was postponed last September amid a series of emergency spending measures in the aftermath of Hurricane Katrina. The House approved a repeal of the tax in April 2005.
In recent weeks both Democrats and Republicans have proposed compromises that would retain the tax at higher exemption levels and lower rates — ranging from an exemption level of $5 million at a flat rate of 15 percent for estates exceeding that, to a graduated system of higher rates for larger estates.

Under the Tax Relief Act of 2001, the estate tax, which taxes million-dollar assets passed along as inheritance — dubbed the "death tax" by critics — is already being gradually phased out by 2010. The following year, it will be reinstated at the original exemption level of $1 million and a top tax rate of 55 percent.

Estimates of lost government revenue resulting from a permanent repeal range widely. The Center of Budget and Policy Priorities, a liberal policy group based in Washington, puts the cost at $1 trillion between 2012 and 2021. Estate tax revenues this year alone are expected to reach $28 billion, according to the Congressional Budget Office.

Facing the rising costs of military operations in Iraq and Afghanistan, and a growing federal deficit, lawmakers on Wednesday said it's simply the wrong time to start cutting taxes for the wealthiest Americans.

"It's irresponsible for the president and Republicans in Congress to repeal this tax," said Sen. Jack Reed, D-R.I. "This isn't just bad economic policy. It's unconscionable."

Sen. Bob Menendez, D-N.J., said repealing the tax was a "gift to the wealthiest Americans who need it the least."

Sen. John Thune, R-S.D., said the tax hurts family-owned businesses that are typically property rich, but cash poor. He said lawmakers who raised alarms about similar cuts to capital-gains taxes in recent years were "wrong then, and they will be wrong again."

"Those rate reductions have paid for themselves over and over" by spurring economic growth, Thune said.

Several small-business lobbies have long campaigned against the tax, arguing that the laws surrounding it are confusing and costly for owners.

"The death tax creates a disincentive to expand business, create jobs, and far too often literally taxes family business right out of the family," Dan Donner, the president of the National Federation of Independent Business, said in a statement.

If nothing else, members on both sides of the aisle agreed that small-business owners deserved greater certainty in estate planning.

"For small businesses with limited liquidity, that uncertainty is paralyzing," said Sen. Blanche Lincoln, D-Ark.

A cloture vote on the bill is scheduled on Thursday.

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