Republicans Work on Strategy to Cut Estate Taxes

Republicans are scrambling for a new strategy on cutting estate taxes before lawmakers leave for summer campaigning and politicking overtakes policymaking.

The current idea pairs an estate tax cut with popular tax breaks that expired last year. Those breaks include a research and development credit for businesses, and deductions for college tuition and state sales taxes.

House Speaker Dennis Hastert, R-Ill., said Wednesday that the House could vote on such a combination this week.

It is the latest approach that Republicans have tried to steer an estate tax around Democrats. They are reluctant to cooperate in advancing a GOP priority months before an election to determine control of Congress — and possibly the fate of an estate tax reduction.

"There's a general fear that if Democrats pick up seats in the House or Senate, then at least in the next few years the prospects will get worse, not better," Michael Graetz, a professor at Yale Law School and co-author of a book about the campaign to repeal the tax.

President Bush's first tax cut shrank the estate tax through this decade and eliminated it in 2010. That law, however, is temporary and the estate tax reappears at older and higher rates in 2011.

The House last year passed a bill abolishing the tax, extending a yearlong repeal already in place for 2010. The Senate, however, must gather 60 votes in favor of any estate tax change to overcome the obstacles thrown up by Democrats.

GOP efforts to negotiate with Democrats to reduce, but not eliminate, the tax did not bear fruit. The House made a compromise offer that did not attract enough votes to pass the Senate.

Senate GOP leaders decided to add an estate tax cut to a pension and retirement bill that also would revive the popular and expired tax breaks.

Pension negotiators balked, worried that the estate tax could undermine their carefully crafted pension bill. GOP leaders responded by proposing they remove the estate tax and the tax extensions from the pension bill and combine them in separate legislation. That upset Senate tax writers and businesses.

The R&D Credit Coalition, a group of businesses that used the now-expired research tax incentive, said it was "extremely troubling" that the credit could be pulled from a pension bill very close to completion.

"As it languishes, American companies endure a tax increase as their costs of doing critical research and development in the United States rise," the group said.

The chairman of the Senate Finance Committee, Sen. Charles Grassley, said he is not sure the idea will work. He told reporters he has not seen evidence that Republicans have lined up enough Democrats to get 60 votes and pass an estate tax cut, potentially putting the expired tax cuts at risk.

"Republicans are going to end up getting blamed for putting all this stuff in one package, thinking you could cram it down the throats of everybody," he said.

Grassley, R-Iowa, said the GOP can blame Senate Democratic leader Harry Reid of Nevada for blocking the legislation "but Republicans are in the majority."

Sen. Max Baucus of Montana, the top Democrat on the Senate Finance Committee, said adding the tax breaks to the estate tax bill will not automatically make tax cuts for heirs more acceptable.

"We will look at their estate tax reform on its merits only and will not at all be influenced by what other legislation it may or may not be attached to," he said. In addition, he said, many of the pension negotiators are concerned about pulling out the tax breaks from the bill.

Reid accused Republicans of "holding hostage needed tax relief for working Americans, businesses, and students in an effort to pass fiscally irresponsible estate tax breaks."