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U.S. Senate Democrats Drop Estate Tax Provision From Plan

July 19, 2012

U.S. Senate Democrats Drop Estate Tax Provision From Plan

Senate Majority Leader Harry Reid, right, with Speaker of the House John Boehner. Photographer: Jim Watson/AFP/Getty Images

Faced with possible dissent in their party, U.S. Senate Democrats are dropping estate tax language backed by President Barack Obama from their proposal to extend most George W. Bush-era tax cuts through 2013.

Senate leaders plan to bring the tax measure to a vote next week. The core of the plan would extend the Bush tax cuts through 2013 for 98 percent of households while letting the tax reductions expire for individuals’ income exceeding $200,000 and married couples’ income of more than $250,000.

Some Senate Democrats had said they were undecided about the measure because of the estate tax provision. Senator Dick Durbin, an Illinois Democrat, said he hoped the decision to leave that issue out of the bill would prevent defections.

Majority Leader Harry Reid, a Nevada Democrat, last week expressed confidence about his ability to persuade a majority of Senate lawmakers to support Obama’s plan.

“The majority leader wanted to focus on middle-class tax relief, and he felt it was best to keep it focused on that exclusively,” said Durbin, the second-ranking Senate Democrat. He said his party is divided on the estate tax.

While 60 of the Senate’s 100 votes may be required to pass the tax-cut bill, Democrats are trying to show majority support for the measure so they can blame Republicans for using Senate procedures to block it.

53 Senate Votes

Democrats control 53 Senate votes, and two of those lawmakers --Virginia Democrat Jim Webb and Connecticut independent Joe Lieberman -- have said they will vote against the Obama tax plan.

In interviews this week, Democrats Mark Pryor of Arkansas and Kay Hagan of North Carolina said they were undecided on Reid’s plan at least in part because of the estate tax proposal.

“I would prefer to leave the estate tax as is,” Pryor said yesterday in an interview.

“I’m personally concerned about the estate tax,” Hagan said today, adding that protecting the middle class from tax increases was her priority.

Democrats Ben Nelson of Nebraska and Joe Manchin of West Virginia said today they too were undecided on Reid’s bill.

Nelson said he would prefer to extend all of the expiring tax cuts and could consider a $1 million threshold. He hasn’t expressed an opinion about the $200,000 and $250,000 cutoffs.

“I’m looking at it very carefully, because we certainly want to extend as many tax cuts as we can,” Nelson said. He questioned Democratic leaders’ contention that Congress should act now on what members can agree on and work on the other issues later. “It’s an argument that very often becomes an argument for then doing nothing later,” Nelson said.

Per-Person Exclusion

Under current law, the estate tax has a $5.12 million per- person exclusion and a 35 percent top rate. The earlier version of the Democratic plan had a $3.5 million per-person exclusion and a 45 percent top rate, the parameters that were in effect in 2009.

If Congress does nothing, in 2013 the exclusion would drop to $1 million and the top rate would rise to 55 percent. That may open Democrats to criticism that they favor raising estate taxes for people with as little as $1 million in assets.

The estate tax has often divided Democrats, some of whom support Republican proposals for higher exclusions and lower rates.

In April 2009, 10 Democrats supported the provision that ultimately took effect for 2011 and 2012 that Republicans want to extend. They included eight current senators: Maria Cantwell and Patty Murray of Washington, Max Baucus and Jon Tester of Montana, Pryor, Ben Nelson, Bill Nelson of Florida and Mary Landrieu of Louisiana.

$40.5 Billion

If Congress doesn’t act on the estate tax, 52,500 taxable estates would pay $40.5 billion in taxes in 2013, according to the Tax Policy Center, a nonpartisan research group in Washington.

With the Republican plan, 4,000 taxable estates would pay $13.5 billion, according to the center. The Democratic plan eliminated from the latest version of the bill would have generated more than $21 billion in taxes from more than 7,000 estates.

To contact the reporters on this story: Richard Rubin in Washington at rrubin12@bloomberg.net; Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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