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The Big Tax War

In this handout photo provided by United Nations High Commission for Refugees (UNHCR), Goodwill Ambassador Angelina Jolie, centre, listens to Sikh children playing religious music at the Khalsa Diwan Welfare Society, an organization run by Afghan refugees of the Sikh faith for other refugees, in New Delhi, India, Saturday, Nov. 4, 2006.
AP Photo/UNHCR, K.McKinsey, HO
Now that they've sent President Clinton a bill to eliminate inheritance taxes, congressional Republicans are turning their attention to another priority: easing the so-called "marriage penalty" paid by millions of couples.

The Senate opened debate Friday on a 10-year, $248 billion measure that would essentially cut taxes for all married couples by adjusting their tax brackets and by increasing their standard deduction to twice that of single taxpayers.

President Clinton called the elimination of the estate tax an irresponsible budget buster that will reward the nation's wealthiest people while burdening working families with increased taxes. He vowed to veto it. He also opposes changes in the marriage penalty unless Congress agrees to create an acceptable Medicare prescription drug benefit. Republicans have refused to link the two.

In his weekly radio address Saturday, Clinton called the estate tax repeal "fiscally irresponsible."

"Its costs would explode to $750 billion after 10 years, and every year fully half its benefits would go to just 3,000 families," said the president. He said the legislation and other recent Republican congressional actions amount to "an about-face on our strategy of fiscal discipline."

Accusing Republicans of "serving special interests, not our national interest," President Clinton said Congress has done nothing to provide a prescription drug benefit for older Americans or "add even a day to the life of Social Security or Medicare."

In the Republican radio address, Rep. Pat Toomey, R-Pa., said the burgeoning federal budget surplus makes it the perfect time for Congress to fix the so-called "marriage tax" glitch and enact other tax cuts.

"It's just plain wrong for the government to punish people for getting married," Toomey said. "Washington is swimming in surplus tax dollars. Let's give some of it back to working Americans by ending unfair taxes."

While Mr. Clinton left no doubt that he will veto the bill to repeal estate taxes, he said he would accept the marriage tax measure, but only if Republicans also send him legislation creating an acceptable Medicare prescription drug benefit.

No deal, say the Republicans.

"We're going to pass marriage penalty relief. We're not going to do it contingent on opening up a brand new entitlement for unlimited spending," said Sen. Don Nickles, R-Okla., the majority whip.

Democrats are offering an alternative that would simply allow a married couple to file as single taxpayers or jointly, whichever is better for them. But it is not likely to prevail.

Once passed by the Senate, the tax bill will have to be reconciled with a House version costing $182 billion over 10 years. Republicans are likely to agree on the bigger tax cut and send it to Clinton prior to the GOP national political convention beginning July 31.

Senators voted 59-39 Friday to pass the "death tax" elimintion bill, ignoring Democratic arguments that it was a tax cut for the very richest Americans. Sponsors portrayed the measure as a matter of basic fairness and a remedy for a tax that punishes success. Most Republicans were joined by nine Democrats in voting for it.

"This thing is a cancer," said Sen. Phil Gramm, R-Texas, of the estate tax. "We don't want it to be left for one person."

Only about 2 percent of estates are now taxed by the federal government. In 1997, about 43,000 estates out of more than 2 million deaths were affected.

But supporters of repealing the tax said many families and business owners are forced to pay thousands of dollars to lawyers and consultants for arrangements that protect their money from tax rates as high as 55 percent.

"No family, no farm and no business should have to worry about this sort of thing," said Sen. William Roth, R-Del.

The bill, which passed the House in June with support from 65 Democrats, would cut the top 55 percent estate tax rate in 2001 and then gradually phase out all other rates, with full repeal coming in 2010. The cost to the government was estimated at $105 billion during the phaseout, rising to $750 billion over the following decade.

Rising incomes have forced more people to worry about estate taxes. A house, a retirement plan and some insurance can quickly put a person's estate into the tax zone - above $675,000 for individuals and above $1.3 million for couples, farms and small businesses, tax experts say. These levels are already scheduled by law to increase to $1 million for individuals and $2 million for couples by 2006.

Democrats contended that the few smaller businesses and family farms struck by the estate tax could easily be helped by simply raising exemptions in current law. The Senate, however, defeated a Democratic substitute costing $64 billion over 10 years that would have sharply raised the estate tax exemptions.