Death Sentence For 'Death' Tax

The House completed work on the major pieces of President Bush's $1.6 trillion tax cut package Wednesday by passing a measure to eliminate the estate tax by 2011. Critics called it costly and unnecessary.

The legislation, with a price tag of $185.5 billion over the 10-year phaseout period, cleared the House on a 274-154 vote. Like other Bush tax cuts, the measure could undergo significant change in the Senate, but sponsors remain optimistic that the tax on inheritance eventually will end.

"This is the official start of the funeral procession of the death tax," said Rep. Jennifer Dunn, R-Wash.

The tax affects estates of only about 2 percent of people who die each year, largely due to a $675,000 exemption that will rise to $1 million in 2006. But avoiding the tax, which tops out at 55 percent, requires costly insurance and estate planning, and it causes particular problems for many farmers and small businesses who often are forced to sell assets.

A Democratic alternative costing about $39 billion over 10 years would raise the exemption to $2 million immediately for individuals and gradually to $2.5 million, which sponsors say would fix things for most people.

"It makes more sense to get instant relief from the Democratic bill, for more people and right away," said Rep. Charles Rangel of New York, senior Democrat on the House Ways and Means Committee.

But the Democratic bill was defeated on a 227-201 vote. "Without full repeal, any death tax measure is a placebo," said House Majority Whip Tom DeLay, R-Texas. "You've got to kill it by ending it once and for all."

The House already passed Mr. Bush's $958 billion across-the-board income tax cut and a $399 billion measure to ease the marriage tax penalty and double the child tax credit. The estate tax bill would bring the House-passed total to $1.55 trillion over 10 years, just under Mr. Bush's often-stated tax cut limit.

The estate tax repeal would begin cutting top rates in 2002 and repeal it entirely in 2011, with most of the cost coming in the bill's final two years. Critics, including many Democrats, say this hides the true cost and that eliminating the tax would cost some $750 billion over the second 10 years — just as baby boomer retirements put a strain on Social Security and Medicare.

Democrats also argue that the bill's changes in capital gains taxes after repeal could result in a hidden tax increase when heirs sell farmland or other assets.

A group of wealthy individuals, including William Gates Sr., father of Microsoft founder Bill Gates, and financiers George Soros and Warren Buffett, has attacked the repeal bill as an unfair boon to the rich that would hurt philanthropy. Others say state budgets could be harmed because they get some proceeds of the federal tax.

So far, those voices have been overwhelmed on Capitol Hill by a concerted lobbying campaign led by the National Federation of Independent Business, American Farm Bureau Federation, U.S. Chamber of Commerce and National Association of Manufacturers in favor of the bill.

"The long arm of the IRS should not reach beyond the grave," said Thomas Donohue, president of the Chamber of Commerce.