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Good News on the Estate Tax...

Effort to Repeal Estate Tax Said to Be Faltering - Los Angeles Times: By Janet Hook, Times Staff Writer June 4, 2006: A decade-long drive to permanently repeal the estate tax is about to come to a head, but proponents are finding it surprisingly difficult to get their political football into the end zone. The repeal proposal may be an indirect casualty of Hurricane Katrina, which forced Senate leaders to postpone a vote on the plan in September, when hopes it would pass were high....

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 already accomplished a remarkable thing over the last decade: making a national political issue out of repealing a tax that applies to less than 1% of all taxpayers, including some of the richest people in the U.S....

[S]wing senators are now 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.... The ferocity of the fight is surprising in light of the fact that only a tiny slice of the population 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 J. Graetz, a professor at Yale Law School and coauthor 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."... A recent report by Public Citizen, a liberal watchdog group, identified 18 wealthy families who contributed to organizations promoting repeal of the estate tax. It calculated that at least 15 of those families' businesses paid $27 million since 1998 for lobbyists to promote repeal of the estate tax....

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 Assn. for Advanced Life Underwriting, which opposes repeal. "No one was fighting against it."... Opponents of repeal say the deficit-ridden federal government cannot afford to repeal a tax that benefits only the wealthy. The Center on Budget and Policy Priorities estimates that in the first 10 years after a repeal, the government would lose $776 billion in revenue.

The issue is coming to a head now because, in President Bush's 2001 tax cut, Congress voted to gradually reduce the inheritance tax -- which was then 55% on the amount in excess of $1 million -- and to repeal it in 2010. But because the entire tax law will expire after 2010, under a provision to hold down its price, the 55% estate tax is scheduled to be reinstated in 2011.... In recent years, the size of the federal deficit has prompted second thoughts among some who supported estate tax repeal in the past, including Sens. George V. Voinovich (R-Ohio), Ron Wyden (D-Ore.) and Evan Bayh (D-Ind.)...

And the Center on Budget and Policy Priorities Says:

Center on Budget and Policy Priorities: Next week, the Senate plans to vote on what is probably the most important tax issue this year: whether to permanently repeal all, or nearly all, of the estate tax.... The Senate was set to vote on the issue last fall, but backed away after Hurricane Katrina hit. Finance Committee Chairman Charles Grassley said then it would be "a little unseemly" to eliminate the tax "at a time when people are suffering."...

Permanent repeal would cost nearly $1 trillion between 2012 and 2021, the first decade in which its costs would be fully felt. (This cost includes $776 billion in revenue loss and $213 billion in higher interest payments on the federal debt.)... [T]he annual revenue loss from repealing the estate tax is about the same as total federal spending on homeland security nationwide.... [T]wo critical facts remain poorly understood: the tax has shrunk considerably in recent years, and several so-called "compromise" proposals being pushed in the Senate would cause nearly as much budgetary damage as full repeal.

Only 0.5 percent of estates now pay any estate tax whatsoever, and this number is falling. The value of an estate that is exempt from taxation has increased from $1.35 million per married couple in 2000 to $4 million per couple in 2006... the number of taxable estates has dropped from more than 50,000 in 2000 to fewer than 13,000 in 2006.... Proponents of estate-tax repeal frequently argue that repeal is needed to prevent large numbers of family-owned farms and businesses from having to be liquidated to pay the tax. A recent Congressional Budget Office study exploded this myth....

The leading "compromise" proposal would lose 84 percent as much revenue as full repeal and reduce the effective tax rate to just 6 percent.... Reportedly, Senator Baucus (D-MT) is considering proposing another costly "compromise" plan that would cause significant budgetary damage. The plan combines an exemption level of $7 million per couple with a graduated tax rate of 15 percent, 25 percent, and (for estate values in excess of $20 million per couple) 35 percent. The reported Baucus plan would lose 74 percent as much revenue as full repeal, according to the Tax Policy Center.

In reforming the estate tax, increasing the exemption level makes more sense than cutting the tax rate. The main reason for the sharp drop in the number of estates subject to the estate tax between 2000 and 2009 is the large increase in the exemption level.... Conversely, the main reason for the large revenue losses under the Kyl proposal -- and, to a lesser degree, the Baucus proposal -- is its deep cut in the estate tax rate. Cutting the rate targets tax relief on larger estates.... [I]f the goal of estate-tax reform is to relieve smaller estates from the tax... freezing the tax at its 2009 level (with a $7 million exemption for couples and a 45-percent rate) is far superior to the Kyl or Baucus proposals...

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