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Copyright 2000 The Seattle Times Company  
The Seattle Times

June 10, 2000, Saturday Final Edition

SECTION: NEWS; Pg. A3; CLOSE-UP

LENGTH: 1655 words

HEADLINE: HOUSE VOTES ESTATE-TAX REPEAL
Bipartisan appeal passes measure to end tax that hits few, but hits them hard

BYLINE: Seattle Times staff: Seattle Times news services

DATELINE: WASHINGTON

BODY:

 
 
PRESIDENT CLINTON SAID the House GOP estate-tax bill would give "the largest estates a windfall." But sponsors said the threat of the tax forces people to do costly planning, restrains expansion and investment and jeopardizes jobs - and many liberal Democrats agreed.
 
WASHINGTON - The House voted overwhelmingly yesterday to phase out the federal tax levied on estates after a person dies, with 65 Democrats crossing party lines to vote for one of the GOP's top legislative priorities.
The lopsided 279-136 vote and last-minute manuevering by Democratic leaders hoping to ward off the defections underscored the sudden potency of the issue.
The bill would gradually repeal the estate tax over the next decade, mostly by cutting rates. Already, 98 percent of Americans who die avoid taxes altogether because the first $675,000 of an estate is exempt.
Fewer than 48,000 estates paid any estate tax in 1998, the most recent year figures are available. But about half the money raised by estate tax was paid by the fewer than 3,000 estates worth more than $5 million.
President Clinton promised a veto on the grounds the GOP bill was fiscally irresponsible, but in a letter to House Speaker Dennis Hastert, R-Ill., said he was committed to finding a compromise.
The measure faces an uncertain future in the Senate, where a more popular tax bill, relieving the so-called marriage penalty, has languished since February. And the likelihood of Republicans and Democrats striking a deal on taxes diminishes each day as the November election draws nearer.
The House estate-tax vote margin was just enough to override a veto, but Democratic leaders said a combination of absentees and members promising to switch would allow them to sustain a veto.
 
 
Windfall, or eased burden?
The bill's slow phase-out of the tax helps keep its cost relatively low - $105 billion in lost revenue over 10 years. When fully implemented, federal tax revenues would decline an estimated $50 billion a year, leading Clinton to decry it as giving "the largest estates a windfall."
But small-business and farm groups have pushed hard for an estate-tax repeal, claiming the tax burden at death all too often forces heirs to sell businesses and farms.
The bill was sponsored by Rep. Jennifer Dunn, D-Wash., and John Tanner, D-Tenn.
"I'm very happy that we passed a repeal in the House that's getting rid of a very unfair tax that has done a great deal of damage to our country's economy," said Dunn, of Bellevue. "It takes dollars out of the economy and it hurts businesses and it hurts communities with farms that have to be turned over to corporations and then developed."
Seattle Times publisher Frank Blethen was an active member of a coalition of small-business leaders and farmers that lobbied for repeal of the tax. Dunn credited the coalition with building support for the measure's success.
She said she had been concerned about the issue since joining the Ways and Means Committee in 1995.
"I've always been bothered by taxes that were unfair, and the death tax is eminently unfair," she said.
In Washington state's delegation, Dunn voted yes along with Reps. Richard "Doc" Hastings, R-Pasco; Jack Metcalf, R-Langley; George Nethercutt, R-Spokane; Brian Baird, D-Vancouver; and Jay Inslee, D-Bainbridge Island.
Rep. Norm Dicks, D-Bremerton, voted no. Reps. Jim McDermott, D-Seattle, and Adam Smith, D-Tacoma, did not vote.
McDermott, in Seattle for his daughter's graduation, accused Republicans of pandering to the rich est Americans and using misleading rhetoric. He said most Americans are not affected by the estate tax, and he would have voted against the bill.
"The estate-tax repeal will not become law; this vote is purely political," McDermott said. "If the Republicans genuinely wanted to help the 6 in 10,000 American small businesses and farms subject to the estate tax, they would have worked with Democrats to craft a bipartisan compromise."
 
'Natural-born killer'
Debate was sharply partisan.
Sponsors said the threat of the tax forces people to do costly estate planning, restrains expansion and investment and jeopardizes jobs.
"The death tax is a natural-born killer of everything they have worked for their entire lives," said Rep. Bill Archer, R-Texas, chairman of the House Ways and Means Committee. "This isn't a rich-against-the-poor issue. This is a jobs issue and a fairness issue."
Said Rep. Juanita Millender-McDonald, D-Calif.: "This is an irresponsible tax cut for their special interest allies. It seeks to benefit only 2 percent of Americans. I'm here representing the 98 percent, and I say no."
Rep. Dave Camp, R-Mich., said, "There is nothing more un-American than telling farmers that they are going to have to give the fruits of their labor to the federal government, not to their children."
 
 
Hastert's personal story
Hastert led Republicans in recounting story after story of family farms forced into bankruptcy and dry-cleaning businesses sold to raise money to pay the tax, rather than being passed on to sons and daughters.
In an unusual speech from the floor, the 58-year-old speaker recalled that when he was young and newly married, his father-in-law, an Illinois farmer named Alan Kahl, passed away. Hastert said he had contemplated taking over the farm with his wife, Jean. Instead, major assets including land, machinery and cattle had to be sold to pay the inheritance tax.
"I might have been a good farmer," Hastert said. "But I didn't have that choice."
The Food Marketing Institute, which represents supermarkets, said roughly half of its 1,500 members are one-store owners whose estates would be subject to the tax if they failed to do aggressive planning. Tallying the value of buildings, inventory and machinery, many of those estates would be hit with the top tax rate of 55 percent, which is imposed on assets worth more than $3 million, said institute spokesman Bill Greer.
"The burden of this tax does not fall on the dead rich person," said Rep. Christopher Cox, a California Republican. "That's the one person who doesn't care. The real burden is on the low-wage worker who pays a tax rate of 100 percent when she loses her job because the business has to be sold off in whole or in part to pay the tax man."
 
Crossover appeal
Although repeal is a top GOP priority, co-sponsors included many black and Hispanic Democrats and liberals not normally allied with such tax cuts. They agreed the tax was causing headaches for minorities and other middle-class entrepreneurs who are taking advantage of the booming economy to build successful enterprises and create jobs.
"Who hires the workers in America? Is it the guy on the street corner or the people who achieve some success?" said Rep. James Traficant, D-Ohio.
Asked how Republicans had attracted so much Democratic support, Rep. Charles Rangel, D-N.Y., said that the GOP had the better message. "Death tax just sounds wrong," he said with a shrug, referring to the GOP moniker for the tax. "There's an old political saying: If you've got to explain your vote, you've got a problem."
 
Tax has large exemptions
The tax, first enacted in 1916 and estimated to raise $28 billion this year, is levied on monetary assets and property owned by a person at death. The $675,000 exemption is scheduled to rise to $1 million by 2006 and, with some estate planning, a couple can arrange to effectively double the exemption for heirs.
Small businesses and farms already have a $1.3 million exemption and the possibility of numerous other breaks, so relatively few farms and small businesses pay much estate tax, according to Internal Revenue Service data.
The Democratic alternative, sponsored by Rangel, would have immediately cut estate-tax rates by a fifth, boosted the individual exemption to $1.1 million and made it easier for farms and small businesses to claim a $4 million exemption. With revenue offsets, the Democratic bill would cost $22 billion over ten years, or $5 billion a year in 2010.
The Democratic alternative was rejected 222-196. But in the end only one lawmaker voting - Rep. Owen Pickett, D-Va. - disapproved of any overhaul of estate taxes.
Like several other tax bills moving in the House this year, estate-tax repeal was part of the $792 billion tax cut vetoed last year by Clinton. Republicans have carved up that bill and are pushing its individual pieces to the floor, forcing some Democrats to take uncomfortable votes as both parties vie for control of the House in the November elections.
Information from Seattle Times Washington Bureau reporter Kevin Galvin, The Washington Post, Knight Ridder Newspapers and The Associated Press was used in this report.
 
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How the tax works
 
The estate tax A person who dies in 2000 would owe taxes immediately on an estate worth more than $675,000, unless the entire estate is left to a surviving spouse, who can inherit it tax-free. When the surviving spouse dies, an exemption of twice the single exemption applies, which amounts to $1.3 million in 2000.
 
Rates Tax rates begin at 18 percent on the first $10,000 of a taxable estate and top out at 55 percent on those over $3 million. But because of the $675,000 exemption, estate taxes in 2000 begin at the 37 percent level.
 
Surtax A 5 percent surtax is imposed on estates between $10 million and $17.1 million. Above $17.1 million, the rate drops again to 55 percent.
 
Family farms, small businesses Some special rules apply to family farms and small businesses. They can claim a higher exemption of $1.3 million per person in 2000 and they can use special valuation rules to reduce estates by up to $770,000. In addition, they can pay off estate taxes over 14 years at low interest rates.


GRAPHIC: PHOTO, CHART; Dennis Cook / The Associated Press: Rep. Jennifer Dunn, R-Bellevue, speaks to reporters after the House passed her bill to phase out inheritance taxes by 2010. With her are Rep. Albert Wynn, D-Md., left, and Rep. John Tanner, D-Tenn.

LOAD-DATE: June 12, 2000




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