Senate poised to vote on repealing estate taxes

WASHINGTON -- Senate Republicans will push for a vote this week on permanently repealing the estate tax even though the GOP appears to lack enough support to get past Democrats' objections.

The tax has fallen as a result of gradually escalating exemptions and decreasing rates since President Bush's tax cut in 2001.

In 2010, the tax will disappear. But without action by Congress, it will return with a vengeance in 2011, when the top tax rate on estates reverts to 55 percent and the exemption shrinks to $675,000.

This year the top rate is 47 percent and the first $1.5 million left to heirs is not taxed at all.

A small group of Republicans and Democrats has worked for months on a compromise that would limit the tax, called the "death tax" by its critics, to only the wealthiest families.

Farming, ranching and business organizations that want the tax removed are keeping close watch. They want Senate GOP leaders to gauge support for repealing the tax permanently before moving ahead with any compromise.

"We believe it would be a serious mistake, and exceptionally difficult to again explain to small business, if a compromise is advanced without first giving the small business community the opportunity to actively put their resources to the task of delivering the votes for full repeal," a coalition of groups wrote Senate Majority Leader Bill Frist, R-Tenn.

Lobbyists and lawmakers acknowledge they are several votes short of the 60 needed in the Senate to clear potential Democratic obstacles to a permanent repeal. The House passed a bill in April that would abolish the tax.

Republican Sen. Jon Kyl of Arizona and Democratic Sen. Max Baucus of Montana, calculating where the votes are, have been negotiating with other senators in hopes of striking a deal.

Most estates already are exempt from the tax. The most recent statistics from the Internal Revenue Service show just over 2 percent of people who died in 2001 left estates subject to taxation.

Those who want to leave the tax in place say its repeal gives billions of dollars to wealthy families at the expense of others who might be helped through government programs or other tax breaks paid for with money from the inheritance tax.

"Way too many senators are more focused on the three wealthy donors they have met at their last fundraiser than they are at the millions of their constituents who will pay higher debt or get less Medicaid or Social Security benefits," said Gene Sperling, former President Clinton's economic adviser. He is now a senior fellow at the liberal Center for American Progress.

Farm, ranch and business owners say the tax can ruin enterprises they want to pass to their families and force them into expensive and distracting estate planning.

"Our farmers and ranchers say that repeal is the only way to really solve their problems," said Pat Wolff, tax specialist at the American Farm Bureau Federation. "The talks coming off the Hill are just not acceptable."

The discussions have centered on the combination of elements that would exempt a bigger chunk of estates from taxes and lower the rate, while getting support from 60 or more senators.

Some senators who in the past have supported abolishing the tax joined the negotiations because they now worry that a repeal would worsen federal budget deficits.

That is a concern shared by Federal Reserve Chairman Alan Greenspan. He told the Senate Banking Committee last week that he would not support repealing the estate tax if it deepened the deficit.

Kyl wants to set the estate tax rate at 15 percent, equal to the tax rate on capital gains and dividends. Sen. Susan Collins, a Maine Republican participating in the negotiations, said that idea has gained some support.

Proposals for the size of an estate that should be exempt from tax have ranged from $3 million to $10 million per person.

The ideas are "all over the page," said Sen. Blanche Lincoln, D-Ark.

Baucus said last week he did not expect negotiations to produce an agreement this summer.