House Reaches Compromise on Estate Tax Changes

House Republicans who want to abolish the Estate Tax are one step closer after reaching a compromise with Democrats. The deal would eliminate all but about the top 5,000 largest estates from the tax.

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Republicans have dubbed it the death tax, and vowed to kill it, but the House of Representatives has opted for what many see as the next best thing. It passed a bill that drastically scales back the estate tax.

Republican leaders believe that measure stands a better chance of becoming law. NPR's Kathleen Schalch reports.

KATHLEEN SCHALCH reporting:

The House has voted repeatedly to end the estate tax. Indiana Republican Mike Pence says he's dedicated himself to this ever since coming to Capitol Hill.

Representative MIKE PENCE (Republican, Indiana): I believe death taxes are immoral.

SCHALCH: Because, he says, people pay taxes on their money when they're alive, and shouldn't have to do it again when they die.

Still, he and other Republicans voted for what they called a compromise.

Rep. PENCE: What we will do today is not repeal, but it is relief.

SCHALCH: A lot of relief, actually. The bill would exempt all but about 5,000 estates per year from having to pay any estate taxes at all. Individuals could leave up to $5 million and couples could leave up to $10 million to their heirs, tax free. Larger estates would still pay, but the rate would drop to the same rate investors pay for capital gains, currently 15 percent. That rate would double for the very biggest estates, those worth $25 million or more.

But Democrats like North Dakota's Earl Pomeroy don't see this as much of a compromise.

Representative EARL POMEROY (Democrat, North Dakota): It's virtual repeal, and make no bones about that. Virtual repeal of the estate tax.

SCHALCH: Pomeroy says the measure would cost the treasury about $60 billion per year, or roughly 80 percent as much as simply ending the tax altogether.

Democrats denounce the bill as fiscally irresponsible, since the money would have to be borrowed. And like the Republicans, they claim to have the moral high ground.

Georgia Democrat John Lewis, and others, lambasted Republicans for forging ahead with this, while blocking efforts to raise the minimum wage.

Representative JOHN LEWIS (Democrat, Georgia): This Congress should be ashamed! Be ashamed! When will we stop helping the super rich? They don't need our help.

SCHALCH: But Republican arguments were mainly aimed at reassuring fellow conservatives, who had hoped for more. California Republican Darrell Issa.

Representative DARRELL ISSA (Republican, California): I rise in support of this bill, not because it's good enough - it's not. It doesn't keep the promise I made to the people of my district to end once and for all the double taxation of the dead. But I do rise in support of this because it's the best we can do.

SCHALCH: That's because the Senate has balked at repealing the tax outright. Earlier this month, Senate Republicans tried again and fell short by three votes. And this poses a dilemma, because under current law the tax gets smaller and exemptions get larger every year until 2010. Then the tax goes away completely for a year. Republicans figured that would make permanent repeal almost inevitable.

But California Republican Wally Herger warned that this strategy could backfire.

Representative WALLY HERGER (Republican, California): If Congress fails to act, the death tax will return full-force in 2011, reducing exemption levels and restoring maximum tax rates of nearly 60 percent.

SCHALCH: Most Democrats say they don't want that either. Instead, Earl Pomeroy and others have proposed raising the exemption to $7 million per couple.

Rep. POMEROY: This is a compromise the Democrats would be willing to go for. It takes care of 99.7 percent of the estates in this country.

SCHALCH: Republican leaders say that's unacceptable, and they hope the House bill will provide the momentum they need, if not to kill the tax, at least to make it a vestige of its former self.

Kathleen Schalch, NPR News, Washington.

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