Senate Defeats Estate Tax Giveaway...Yet Again
The Senate voted last week to reject a tax and wage package dubbed the "trifecta" that would have slashed the estate tax permanently, increased the minimum wage modestly, and extended a broad set of tax breaks. The bill, passed by the House last month, also contained a number of "sweeteners" to entice targeted senators to vote for the bill."What I will do over the next month [is] assess where America is," Frist said. "And what I would very much like to do or to have happen is ... pressure from the American people. If I felt that, I would use that procedural option in bringing these back."
The trifecta package cleared the House on July 29 on a 230-180 vote. It provided for:
- An increase in the estate tax exemption to $5 million ($10 million for a couple) from the current $2 million level, and a cut in the tax rate to 15 percent for the bulk of estates from today's 46 percent. These changes were to be phased in by 2015 and had different tax rates for estates valued above and below $25 million (see table below for proposed changes);
- A nominal increase in the minimum wage by $2.10 - the first such increase in almost a decade - but about half that amount in real terms when you adjust for inflation and a functional decrease in states where tips are counted against employers' wage.
- A tax break extension package including the research and development tax credit, the state sales tax deduction, the college tuition deduction, and the welfare-to-work credit.
The bill also had a number of tax provisions inserted in order to entice selected senators to vote for the trifecta. For example, a provision aimed at Sen. Maria Cantwell (D-WA), who held her ground and voted against the motion, would allow timber operators to claim a 60 percent deduction for "qualified gains" from timber sales before 2008. She didn't bite. West Virginia senators were thrown a $3.9 billion bone for cleaning up abandoned coal mines, a sweetener that may have been a factor in Sen. Robert Byrd's (D-WV) vote to proceed with the bill.
A $60 million provision was aimed at Sen. Daniel Akaka (D-HI) that would have restored a pre-1993 tax break allowing business-travel deductions for spouses that would help his state's tourism-dependent economy. The provision would end Jan. 1, 2008, and was not enough to sway Akaka. The bill included language Sen. Mark Pryor (D-AR) supported on rural development bonds that would help his state, but Pryor still did not vote to proceed with the bill.
Frist opened floor debate on the trifecta insisting, if not threatening, that this would be the Senate's last opportunity, perhaps assuming that a majority supporting each of the parts translated into a majority supporting the whole.
But in the end, the estate tax provision, which would have eliminated about 75 percent of estate tax revenues, amounting to $750 billion including interest costs in the first decade of full implementation, proved too costly to bear for Democrats and moderate Republicans.
Pryor resisted the addition of rural development bonds key to his state in the bill, saying that "the estate tax package before the Senate goes far beyond what out nation can afford." Republican George Voinovich of Ohio said the trifecta "would be incredibly irresponsible when we must fund the war, secure the homeland and when we know the tidal wave of entitlements are coming due. The numbers just don't add up."
In the end, four Democrats voted for the motion to proceed to debate on the bill: Byrd as well as Sens. Blanche Lincoln (D-AR), Ben Nelson (D-NE), Bill Nelson (D-FL). Two Republicans, Sens. Lincoln Chafee (R-RI) and George Voinovich (R-OH), voted against the motion to proceed. Sen. Max Baucus (D-MT), who would have likely voted for the motion to proceed, was away attending a funeral; Sen. Joseph Lieberman (D-CT), also absent from the vote, would have likely voted against the motion to proceed.
GOP outrage at the defeat of the trifecta was well-expressed by Sen. Kay Bailey Hutchison (R-TX): "We are turning our back [sic] on the middle-class and poor people in this country who depend on the minimum wage and death-tax relief."
Minority Leader Harry M. Reid (D-NV), citing the fact that, under the bill, "8,100 of the wealthy and well-off hit the jackpot, while millions of working families get $800 billion in [national] debt," managed to hold on to the votes of 38 Democrats, despite at times intense lobbying by Frist. Reid was also quick to point out that estate tax repeal will not benefit the middle-class, but rather the richest of the rich in this county.
The Republicans gambled and lost on the all-inclusive bill, and have jeopardized the fate of the popular tax extenders that they could easily have passed as a standalone. Reid tried to attach the extenders to another bill before the Senate left for recess but was rebuffed by Frist. Reid has stated his intention to continue pushing for the tax extenders' passage.
Meanwhile, what will happen next with the provision for back-door repeal of the estate tax also remains to be seen. Frist has rejected calls to bring the "extenders" portion of the trifecta to the Senate floor in a standalone bill, saying "I don't see it unless we do these three." Given Frist's unwavering commitment to gutting the estate tax, the Senate could quite possibly vote yet again on an estate tax measure when Congress reconvenes in September. However, supporters of the estate tax in the Senate have held the line despite having some "vulnerable" members of their ranks tempted by targeted inducements in the bill. So it seems unlikely that any of these targeted senators would change his or her vote should Frist raise the issue again in September.