Democrats Leave Out Estate Tax

Posted July 23, 2012 at 5:32pm

Lawmakers kick off a few more weeks of messaging about extending the 2001 and 2003 tax cuts with a Senate vote Wednesday before House action next week. Senate Democrats, however, will leave estate tax questions that could divide the party.

Both sides want to get rather meaningless votes on their preferred plans. Republicans want to extend all of the Bush-era tax cuts, but Democratic leaders have planned a vote to only extend the current rates for households making less than $250,000 a year. Senate Majority Leader Harry Reid (D-Nev.) filed cloture on the Democrats’ preferred plan Monday, setting up the Wednesday vote.

As in past debates, Senate Democrats will tout their plan as more responsible, and Republicans will decry it for raising taxes. But for Democrats, the $250,000 limit may turn out to be the easy part.

Last week, Reid opted to pull an estate tax extension out of the bill, with a senior Democratic aide saying Democrats preferred to address that issue outside the debate on marginal tax rates. Senate Minority Whip Jon Kyl (R-Ariz.) said Monday that the move would kill any chance of seeing the Democratic-favored measure advance in the Senate.

“The Democrats have now taken the estate tax out of the proposal. The result of which is that on Jan. 1, next year — good luck — the rate goes to 55 percent and you’ve only got a million-dollar exemption. I think that alone is going to doom their proposal. Nobody wants that,” Kyl said. “Well, maybe two Democrats do.”

Kyl was not even sure that Reid would allow a side-by-side vote on the Republican alternative to extend all the tax rates.

The 2001 tax deal included an assortment of tax code changes, including a phased reduction in the estate tax.

The 2001 tax cuts phased down the estate tax until it was eliminated in 2010. The survivors of some wealthy people who died in 2010, including the family of longtime New York Yankees owner George Steinbrenner, escaped without paying any estate taxes.

As part of the two-year extension of the 2001 and 2003 tax rates that Congress passed and President Barack Obama signed into law in December 2010, estate tax rates were set mostly at 35 percent with a
$5 million exemption for the next two years. That rate expires next year.

That left estate tax supporters at a competitive disadvantage because any attempt to extend the Bush-era tax breaks would effectively increase the estate tax.

This time around, Reid initially proposed to reinstate the 2009 estate tax level of a 45 percent tax rate on inheritance in excess of $3.5 million before dropping it entirely.

The last time the estate tax came up for extension, the measure divided Senate Democrats. Former Democratic Sen. Blanche Lincoln (Ark.) worked with Kyl on a higher exemption and rate proposal than many other Democrats favored.

Jim Manley of QGA Public Affairs was Reid’s top spokesman during those estate tax debates.

“When it comes to dealing with issues within the caucus, the estate tax has always been amongst the most difficult that Sen. Reid has to juggle,” Manley said. “It may only affect a small number of Americans, but boy does it cause sharp debates within the caucus.”

Sen. John Boozman (R-Ark.), who defeated Lincoln in her 2010 re-election bid, has gone even further. Last week, he proposed a complete elimination of the tax.

“Death shouldn’t be taxable. It should not force the sale of family farms or the closure of small businesses,” Boozman said last week.

The House plan will include extended relief from the estate tax and the alternative minimum tax. Despite the unlikelihood of such a plan having a chance in the Senate, House Majority Whip Kevin McCarthy pushed back on the idea that the House is simply taking political show votes.

“I don’t see a tax hike looming before you, where it hits every single American, as a show vote to try to stop it,”the California Republican said. “I see an inactive Senate. … What I hear from the Senate is they want to take everyone off the [fiscal] cliff. That’s a show. That’s a political show.”

He said he has been hosting listening sessions for Members with other GOP leaders, including Ways and Means Chairman Dave Camp (Mich.), Budget Chairman Paul Ryan (Wis.) and Chief Deputy Majority Whip Peter Roskam (Ill.).

The point is to prime the rank and file for a vote to extend the Bush-era tax cuts in their entirety, plus a resolution outlining GOP principles for tax reform, including a fast-track mechanism that would force a vote overhauling the tax code next year.

“If the Democrats would like to offer an amendment and put up the president’s tax increase and they’re willing to do that, then that could be put to a vote,” McCarthy said.

A senior Democratic leadership aide confirmed they plan to bring up some alternative that would resemble the president’s plan to extend the tax cuts only for those earning less than $250,000 annually.

In the meantime, both parties are using the issue to take political shots at each other. The Democratic Congressional Campaign Committee sent releases on Monday to media outlets in the districts of 60 Republicans they see as electorally vulnerable.

On the other side, Republicans are readying their “Stop the Tax Hike Day” push, for which McCarthy said about 20 district events have already been scheduled to take place Friday. Members are expected to speak about why a tax increase on high-income earners would negatively affect the economy and job creation.