Proponents of Estate Tax Repeal Grudgingly Accept Compromise

Some of the staunchest advocates of eliminating estate taxes said Wednesday they could accept, with some reservations, a compromise that stops short of complete repeal.

"It's hard to get excited about it," said Pat Toomey, president of the conservative Club for Growth. "I suppose, on balance, it's better to have this than not to have it."

The reduction under consideration, scheduled for House debate Thursday, rewrites estate tax rates in 2010 and beyond. It responds to a quirky and temporary law, part of President Bush's first tax cut, that erases estate taxes in 2010 and revives them a year later.

The chairman of the House Ways and Means Committee recommended rewriting that law by exempting $5 million of an individual's estate, and $10 million of a couple's, from taxation beginning in 2010. Rep. Bill Thomas, R-Calif., would let a surviving spouse use any unused portion of an exemption left by a deceased spouse.

Under that plan, an estate worth up to $25 million would be taxed at capital gains rates, currently 15 percent and scheduled to increase to 20 percent in 2011. Estates worth $25 million or more would be taxed at twice capital gains, currently 30 percent and increasing to 40 percent.

Some farm and business advocates said they could accept the proposed estate reduction because it will make family financial planning easier.

"Our members would like something to happen this year," said Pat Wolff, tax specialist at the American Farm Bureau Federation. "Now is the time to talk compromise if you want something to be done."

The House's most conservative Republicans agreed that some reduction in estate taxes was better than no reduction. Rep. Mike Pence, R-Ind., said if the proposal "moves a little bit in the direction you want to go, that's progress."

He and others worried that the Senate may not accept the House bill, but instead could use it as the starting point for further negotiations.

Rep. Jeff Flake, R-Ariz., said he would feel better about voting for the bill if he knew the Senate could muster the necessary votes to turn it into law. "This is giving in a lot," he said.

House GOP leaders eased the concerns of some lawmakers and business groups by agreeing to increase the $5 million estate tax exemption with inflation in future years, preventing the passage of time from eroding the bill's benefits.

Dick Patten, executive director of the American Family Business Institute, said that is just one change that should be considered.

Linking the estate tax rate to the capital gains tax rate puts families at the mercy of changing political winds, which have driven the capital gains rate up and down over time.

"Lets make that a knowable number," he said. "We want predictability."

Patten would also like to see the tax changes take place immediately, not in 2010.

The Free Enterprise Fund, a conservative group favoring low taxes, sent letters to House members urging them to reject the bill because it subjects some estates to a 40 percent tax rate and eliminates a federal deduction for estate taxes levied by states.

"This bill compromises away too much," the letter said.

Lawmakers have talked about the estate tax for a year or more. But the momentum toward compromise picked up speed this month when a Senate vote proved that repeal advocates lacked the support to force a debate.

That vote proved to lawmakers that they must work toward estate tax reduction if they wanted this year to place the current, temporary tax cuts with permanent reductions.

Republican proponents hope proposed compromise entices support from enough Democrats, particularly those from farming and ranching states, to win passage in the Senate.

Under current law, $2 million of an individual's estate and $4 million of a couple's escapes taxation. The remainder can be taxed at rate as high as 46 percent.

Advocates of repealing estate taxes say the threat forces families into costly estate planning and insurance to avoid being levied.

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.