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Democrats Leave Out Estate Tax

Chris Maddaloni/CQ Roll Call File Photo

Lawmakers kick off a few more weeks of messaging about extending the 2001 and 2003 tax cuts with a Senate vote Wednesday before House action next week. Senate Democrats, however, will leave estate tax questions that could divide the party.

Both sides want to get rather meaningless votes on their preferred plans. Republicans want to extend all of the Bush-era tax cuts, but Democratic leaders have planned a vote to only extend the current rates for households making less than $250,000 a year. Senate Majority Leader Harry Reid (D-Nev.) filed cloture on the Democrats’ preferred plan Monday, setting up the Wednesday vote.

As in past debates, Senate Democrats will tout their plan as more responsible, and Republicans will decry it for raising taxes. But for Democrats, the $250,000 limit may turn out to be the easy part.

Last week, Reid opted to pull an estate tax extension out of the bill, with a senior Democratic aide saying Democrats preferred to address that issue outside the debate on marginal tax rates. Senate Minority Whip Jon Kyl (R-Ariz.) said Monday that the move would kill any chance of seeing the Democratic-favored measure advance in the Senate.

“The Democrats have now taken the estate tax out of the proposal. The result of which is that on Jan. 1, next year — good luck — the rate goes to 55 percent and you’ve only got a million-dollar exemption. I think that alone is going to doom their proposal. Nobody wants that,” Kyl said. “Well, maybe two Democrats do.”

Kyl was not even sure that Reid would allow a side-by-side vote on the Republican alternative to extend all the tax rates.

The 2001 tax deal included an assortment of tax code changes, including a phased reduction in the estate tax.

The 2001 tax cuts phased down the estate tax until it was eliminated in 2010. The survivors of some wealthy people who died in 2010, including the family of longtime New York Yankees owner George Steinbrenner, escaped without paying any estate taxes.

As part of the two-year extension of the 2001 and 2003 tax rates that Congress passed and President Barack Obama signed into law in December 2010, estate tax rates were set mostly at 35 percent with a
$5 million exemption for the next two years. That rate expires next year.

That left estate tax supporters at a competitive disadvantage because any attempt to extend the Bush-era tax breaks would effectively increase the estate tax.

This time around, Reid initially proposed to reinstate the 2009 estate tax level of a 45 percent tax rate on inheritance in excess of $3.5 million before dropping it entirely.

The last time the estate tax came up for extension, the measure divided Senate Democrats. Former Democratic Sen. Blanche Lincoln (Ark.) worked with Kyl on a higher exemption and rate proposal than many other Democrats favored.

Jim Manley of QGA Public Affairs was Reid’s top spokesman during those estate tax debates.

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