Senate's estate-tax foes see momentum for repeal fizzle

Plan that mainly helps the rich lost support after Hurricane Katrina

June 05, 2006|By JANET HOOK | JANET HOOK,LOS ANGELES TIMES

WASHINGTON -- A decade-long drive to repeal the estate tax permanently is about to come to a head, but proponents are finding it surprisingly difficult to achieve their goal.

The repeal proposal might be an indirect casualty of Hurricane Katrina, which forced Senate leaders to postpone a September vote on the plan when hopes that it would pass were high.

Now, with the Senate poised to vote as early as this week, even some of the most ardent supporters of estate-tax repeal predict they will come up short. Some of them are pushing an alternative that would reduce but not eliminate the tax.

Sen. Jon Kyl, an Arizona Republican and longtime estate-tax critic, is urging a tactical retreat because, he says, support for permanent repeal is eroding at a time of big budget deficits. And he fears that the political climate would be even less hospitable after this year's elections if Democrats win control of the House or the Senate.

A key question is whether Kyl or others can assemble a bipartisan majority for an alternative that would sharply cut the estate tax but stop short of full repeal.

Either way, the upcoming Senate debate is a pivotal moment for a coalition of wealthy families, small-business lobbyists and farm groups that has accomplished a remarkable thing over the past decade: making a national political issue out of repealing a tax that applies to fewer than 1 percent of all taxpayers, including some of the richest people in the United States.

Many Republicans believed that coalition was on the brink of prevailing in September before Senate leaders postponed action to focus on responding to Hurricane Katrina - and to avoid the politically damaging image of giving tax breaks to the wealthy while hurricane victims faced financial ruin.

Since then, even some Republicans acknowledge, the momentum for estate-tax repeal has been undercut as spending for the Iraq war and Katrina recovery has climbed.

Swing senators are targets of an intense lobbying war. Advocates on both sides of the issue bombarded their home states with television and radio ads during last week's Memorial Day recess. Each side is deploying rich and famous people to champion its cause. Competing analyses and cost estimates are flying thick and fast.

The ferocity of the fight is surprising in light of the fact that only a tiny slice of the country is affected by the tax, which applies to inheritances in excess of $2 million. Only 12,600 estates will be taxed this year, according to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution.

"How could a tax that's been around since 1916 that affects such a small handful of wealthy Americans be converted into such a populist issue?" asked Michael Graetz, a professor at Yale Law School and author of a book - Death by a Thousand Cuts - addressing that question. "It is the genius of the proponents of repeal. They used all the modern tools available to political movements."

Graetz gives the proponents credit for conducting a well-orchestrated, well-financed campaign that began in the early 1990s, when Republicans and other critics of the estate tax began calling it the "death tax" to make its elimination more politically palatable. A nonprofit group, the American Family Business Institute, was set up in 1992 for the sole purpose of advancing the cause.

A recent report by Public Citizen, a liberal watchdog group, identified 18 wealthy families that contributed to organizations promoting repeal of the estate tax. The watchdog group calculated that at least 15 of those families' businesses paid $27 million since 1998 for lobbyists to promote repeal of the estate tax.

Dick Patten, executive director of the American Family Business Institute, disputed the report, saying that his group's success is due less to wealthy people trying to reduce their tax bills than to business people and farmers who are worried that the estate tax would make it hard for them to pass on their businesses to heirs.

Supporters of the estate tax have found allies among the well-heeled.

Among them is William H. Gates Sr. - the wealthy father of the even wealthier Bill Gates, founder of Microsoft - who has been on the vanguard of the effort to block repeal. Proponents of the tax also have the support of the life insurance industry, which stands to lose business because it sells policies designed to reduce the impact of the tax on inherited wealth.

Estate tax backers acknowledge they were outflanked in the early years of the debate.

"The good guys were asleep for a decade," said Steve Richetti, a lobbyist for the Association for Advanced Life Underwriting. Richetti and others tried to remedy that last year by bringing repeal opponents together in a group called the Coalition for America's Priorities.

Janet Hook writes for the Los Angeles Times.

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