Estate tax bill passes House

Clinton promises to veto phase-out of inheritance levy

Compromise looks possible

June 10, 2000|By Karen Hosler | Karen Hosler,SUN NATIONAL STAFF

WASHINGTON - Dozens of Democratic representatives joined united House Republicans yesterday to overwhelmingly approve a measure that would gradually phase out the federal inheritance tax on large estates.

The vote nearly reached a two-thirds, veto-proof majority. A total of 279 representatives-214 Republicans and 65 Democrats-favored complete repeal of the tax while 136, all Democrats, were opposed.

President Clinton says he will veto the measure but has indicated a willingness to compromise on estate tax relief this election year. The lopsided vote strengthens the position of proponents as the measure heads to the Senate.

"Today's bipartisan vote is a major victory for American families," said Rep. Jennifer Dunn, a Washington state Republican.

"It sends a message to President Clinton that liberals, moderates and conservatives, Democrats and Republicans alike, want to repeal the unfair death tax."

Dunn, the measure's leading proponent, said that "fairness is the issue."

"Why should you have to initiate a tax on assets that have been taxed three or four times already?" she asked.

The vast majority of Americans - about 98 percent - pay no estate tax at all.

An estate can currently pass tax-free to a spouse, and estates valued at up to $675,000 under existing law aren't taxed at all. That tax-free level rises, under current law, to $1 million in 2006.

In addition, estates from farms and family businesses receive a $1.3 million exemption.

Most of the burden of the existing tax in 1998, the most recent year for which Internal Revenue Service data is available, fell on fewer than 3,000 estates worth more than $5 million each.

Under current law, an estate worth $800,000 would owe a tax of about $31,300.

The effective estate tax rate averages about 20 percent, even though the marginal rate ranges from 18 percent to 55 percent. That is due to the size of the exemption in the current law.

The measure approved yesterday would take 10 years to completely eliminate the estate tax - with the first relief going to those paying the highest rate.

Many Democrats readily signed on to what has long been a Republican cause because heirs to farms and family businesses are sometimes forced to liquidate property to pay the tax, thus making the estate tax an issue for some middle-class Americans.

"Between the farm folks in the rural areas and the small-business people in the urban areas, people are beginning to take a different look at things, not just the knee-jerk approach," said Rep. Albert R. Wynn, a Prince George's County Democrat who co-sponsored the measure and appeared with House GOP leaders at two news conferences on the issue.

Maryland's other three Democrats, Steny H. Hoyer of Southern Maryland, and Benjamin L. Cardin and Elijah E. Cummings, both of Baltimore, opposed the measure. All four of the state's Republican representatives voted for the bill.

Recognizing the growing political appeal of the issue, Democrats had offered an alternative that would have been less costly than the Republican measure. It was defeated, 222-196, on a largely party-line vote.

The Democratic alternative would have lowered existing estate tax rates and exempted the first $4 million on estates of family businesses and farms. It would have cost about $22 billion a year by the end of the decade.

Democratic leaders argued that the Republican-backed measure would grant relief to the richest of the rich at a cost that will ultimately reach $50 billion a year.

The estate tax is expected to raise about $28 billion this year.

"This will further enrich some of the richest people in the world by literally tens of billions of dollars. But for 98 percent of Americans, this bill won't even provide one dollar's worth of relief," said House Democratic Whip David E. Bonior of Michigan.

Many of those who might be affected by the estate tax, particularly the very rich, are able to escape it by setting up family trusts or charitable foundations, or by taking advantage of other loopholes.

Supporters of the legislation argued that the burden falls most heavily on those with estates worth between $1 million and $4 million. Frequently, assets need to be sold by the heirs to pay the estate tax, they said.

In the case of farms, ranches and small businesses, liquidation of these assets can have an impact beyond the family to affect the local community as well.

Large tracts of land might be sold to developers or subdivided, and businesses might close, resulting in a loss of jobs and a source of income tax revenue, proponents said.

Dunn was able to assemble an unusual cross section of advocates that included blacks and Hispanics concerned about the impact on minority businesses and hunters and fishermen eager to protect open space.

For example, a coalition of 30 organizations representing ranchers and outdoors enthusiasts found that "one issue we could all agree on was elimination of estate taxes that force ranches to be sold and result in the loss of wildlife habitat," said David Rockland.

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