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Copyright 2000 The New York Times Company  
The New York Times

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July 15, 2000, Saturday, Late Edition - Final

SECTION: Section A; Page 1; Column 4; National Desk 

LENGTH: 1385 words

HEADLINE: CONGRESS CLEARS A BILL TO REPEAL THE ESTATE TAX

BYLINE:  By RICHARD W. STEVENSON 

DATELINE: WASHINGTON, July 14

BODY:
The Senate voted today to repeal the federal estate tax, brushing aside a veto threat from President Clinton and giving Republicans at least a symbolic victory on an issue at the top of their election-year agenda.

The vote was 59 to 39. Although Democrats have long said repeal of the tax would be a hugely expensive giveaway to the rich, 9 of 45 Democrats voted in favor of the legislation, reflecting the shifting politics of taxation at a time of widespread prosperity and growing federal budget surpluses. Four Republicans voted against.

The House passed identical legislation last month. Republican leaders said they would send the measure to the White House promptly and use Mr. Clinton's promised veto -- which the vote today suggested Senate supporters of the bill would be unable to override -- to support their case that voters will not get tax cuts until a Republican becomes president. Gov. George W. Bush, the apparent Republican presidential nominee, supports elimination of the estate tax. His Democratic rival, Vice President Al Gore, backs a far smaller reduction in it.

Republicans presented the legislation, which would phase out the tax over the next decade, largely as an effort to help families pass farms and small businesses from one generation to another. Heirs are sometimes forced by the tax to sell part or all of the estate to pay the Internal Revenue Service.

But even under current law, the tax is levied on only a tiny proportion of estates, those worth more than $675,000, or $1.3 million in the case of family-owned farms and businesses. And in calling for full repeal of the tax for all types of estates, the bill's supporters had in mind some of their wealthiest constituents as well as the growing ranks of voters who have seen their net worth surge as the strong economy drives up the value of their homes and their holdings of stock and other investments.

Republicans said the tax was inherently unfair, no matter who paid it, arguing that there was no justification for the government to use death to make a claim on wealth amassed over a lifetime. They conjured images of the government's reaching into the grave to seize property and said that nothing less than abolishing the tax was acceptable.

"It's a cancer," Senator Phil Gramm, Republican of Texas, said after the vote. "It's wrong. We want to get rid of it totally."

Democrats said they favored exempting family-owned farms and small businesses from the estate tax, and offered their own plan to do so. But they said the Republican plan, in going much further, amounted to a tax break worth hundreds of billions of dollars in coming decades to a tiny slice of extremely rich people.

Moreover, Democrats said during the three days of debate that led up to today's vote, the money that would go to the estate tax repeal could be better used to address issues of more pressing concern to all Americans. They cited Democratic goals including the addition of prescription drug coverage to Medicare and the enactment of tax breaks for college tuition.

In a statement, Mr. Clinton called the legislation "a budget-busting bill that provides a huge tax cut for the most well-off Americans at the expense of working families."

Charitable contributions are a common way for the wealthy to reduce their projected estate tax liability, and so Mr. Clinton warned that repeal of the tax could also cut charitable donations by $5 billion to $6 billion a year.

"When this bill comes to my desk," he said, "I will veto it."

The bill would phase out the federal estate and gift tax -- what Republicans call the "death tax" -- in small steps over the next 10 years, with most of the tax disappearing only at the end of the decade.

Under current law, the amount of tax exemption for estates in general is already scheduled to rise to $1 million by 2006 from its current level of $675,000; the $1.3 million exemption for family farms and small businesses is already in effect. Above those limits, estates are subject to a graduated tax with a top rate of 55 percent.

The bill would start by eliminating a 5 percent surcharge on some estates next year and by reducing the top rate to 50 percent from 55 percent in 2002. Starting in 2003, it would begin reducing all estate-tax rates by one to two percentage points a year.

The tax would be repealed entirely in 2010, at which point the bill would bring changes in the way taxes are assessed on stocks, real estate and other assets held by an estate.

In simple terms, gains in the value of assets held by the estate would be taxed at capital gains rates starting in 2010 rather than at estate-tax rates. The bill would allow surviving spouses to avoid capital gains taxes on $3 million in assets, and in some cases on up to $4.3 million in assets.

The changes would reduce federal revenue by $104 billion over the first 10 years and by $750 billion in the second 10 years, according to the Treasury Department.

On Thursday, the Senate rejected an alternative offered by Democrats that would have substantially raised the exemption for all estates -- and even more so for family-owned farms and small businesses, effectively freeing nearly all of them from the tax. The vote against the Democratic alternative was 53 to 46.

Some members of both parties said there was a slim possibility of a compromise later this year as part of a bigger bipartisan deal on tax and spending legislation. But Republican leaders showed no public willingness today to consider taking what the Democrats had offered.

They said the Democratic plan would be subject to I.R.S. rules so complex that few family farms and businesses would be able to take advantage of it. And if even a scaled-down version of the tax remained, Republicans said, Democrats would press to broaden its reach again whenever they got a chance.

"The Democrats offered a fig leaf," said Senator Don Nickles of Oklahoma, the Republican whip.

In debating the bill, the Senate had adopted a number of tax-cutting amendments, including a repeal of the 3 percent federal excise tax on telephone service and the permanent extension of a corporate tax credit for research and experimentation costs.

But under orders from the Republican leadership, the Senate voted today to strip out all the amendments, intent on sending Mr. Clinton -- and voters -- an undiluted message about the majority's position on the estate tax.

While the debate today put on display the continuing deep differences between the parties over tax cuts, it also demonstrated that Democrats had become more willing to champion tax cuts of their own, although at substantially lower levels than sought by Republicans.

In addition, it illustrated the breach in the Democratic ranks over the estate tax, an issue that the party long considered of interest only to a tiny sliver of very wealthy people and the tax lawyers and accountants who make a living by developing estate plans that help the rich escape the full brunt of the tax.

The Democrats who voted for the bill were Senators John B. Breaux of Louisiana, Max Cleland of Georgia, Dianne Feinstein of California, Mary L. Landrieu of Louisiana, Blanche Lincoln of Arkansas, Patty Murray of Washington, Charles S. Robb of Virginia, Robert G. Torricelli of New Jersey and Ron Wyden of Oregon.

The Republicans opposed were Lincoln Chafee of Rhode Island, James M. Jeffords of Vermont, Arlen Specter of Pennsylvania and George V. Voinovich of Ohio. Tom Daschle, Democrat of South Dakota, and Tim Hutchinson, Republican of Arkansas, did not vote.

A number of the Democrats who voted for the bill are Southerners regularly to the right of their party. Another of them, Mr. Robb, faces a tough re-election race this year and did not want to give the Republicans ammunition to portray him as against tax cuts. Still others come from states with some combination of high real estate prices, large numbers of successful technology entrepreneurs and significant numbers of family-owned farms.

"The estate tax is a wildly clumsy, inefficient tax that basically is a full-employment program for lawyers and accountants," Mr. Wyden said. "We ought to be phasing out the estate tax, and we should work toward a tax code that is both progressive and entrepreneur-friendly."
 

http://www.nytimes.com

GRAPHIC: Photo: Discussing tax-cut legislation yesterday were, from left, Senators John Ashcroft, Jon Kyl, Rod Grams and Larry E. Craig, all Republicans. (Associated Press)(pg. A9)

LOAD-DATE: July 15, 2000




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