April 14 (Bloomberg) -- The U.S. House of Representatives voted to repeal a tax on inherited wealth, a move that would cut as much as $290 billion in government revenue during the next 10 years. Concern about rising deficits may spur a compromise in the Senate, retaining the tax on only the wealthiest Americans.
The House approved the measure yesterday by a 272-162 vote. President George W. Bush called for repeal of the nine-decade-old estate tax in his 2006 budget proposal.
Record federal deficits have eroded support for repeal in the Senate, even as Republicans gained in last year's elections. Some senators who voted for a temporary repeal bill in 2001, including Republicans George Voinovich of Ohio and Susan Collins of Maine, won't commit to eliminating the tax for good.
Voinovich said the Senate may endorse a plan that would provide more exemptions from the tax without repealing it. ``We're hoping we can get a compromise out that will deal with the majority of the problem,'' Voinovich said yesterday. ``We can continue the estate tax for those it should be applied to.''
Senator Jon Kyl, an Arizona Republican who is sponsoring a repeal bill, said he doesn't know whether he has the 60 votes needed for passage in the Senate.
`Death Tax'
Republicans favoring repeal are pushing to make permanent a measure passed four years ago that phases out the estate tax until it's eliminated completely in 2010. If no change is made, the tax will return in 2011 at its original level, with estates worth more than $1 million taxed as much as 60 percent.
Republicans against the estate levy call it the ``death tax'' and say it hurts farmers and small business owners who want to pass their business on to their children.
``Permanent repeal is the one thing we know will work,'' said Dena Battle, a lobbyist for the National Federation of Independent Business, a business group spearheading the repeal effort. ``The death tax doesn't hurt the extremely wealthy, it hurts small business owners.''
The House rejected Democratic proposals, including one by North Dakota Representative Earl Pomeroy that would have raised the exemption level to $3 million for individuals and $6 million for couples, rising to $3.5 million and $7 million in 2009. Pomeroy's bill would have exempted 99.7 percent of Americans, he said.
Paris Hilton
Democrats including Massachusetts Representative Jim McGovern say scrapping the tax would be unfair to lower- and middle-income Americans, who wouldn't benefit. McGovern said repeal would benefit celebrity heiresses such as Paris Hilton, great-granddaughter of Hilton Hotels Corp. founder Conrad Hilton.
``This is one of the most absurd debates I have ever heard in my life,'' Bernard Sanders, a Vermont independent who opposes repeal, said yesterday in the House chamber. ``While the middle class shrinks, poverty increases and the richest people in America have never had it so good.''
Few American families pay the tax. In 2003, 30,627 estates were deemed taxable by the Internal Revenue Service. Those estates were worth a combined $109.9 billion and were taxed at a rate of up to 49 percent. That year, 2.5 million people died in the U.S., according to Census Bureau estimates.
Republican Senators John McCain and Lincoln Chafee oppose repeal. Senate Finance Committee Chairman Charles Grassley, who supports repeal, would back a compromise, he said in an interview yesterday.
Vanished Surplus
Democrats who formerly supported it, including California's Dianne Feinstein, South Dakota's Tim Johnson and Louisiana's Mary Landrieu, now say they oppose full repeal. The Senate has 55 Republicans, 44 Democrats and one independent.
When Congress passed the original phase-out bill, the government had a $127 billion budget surplus. The Congressional Budget Office forecasts this year's deficit will be $394 billion and that cumulative deficits will add up to $2.6 trillion during the next 10 years, based on the budget Bush submitted to Congress in February. The CBO estimates that repeal of the estate tax will cost $290 billion from 2006 to 2015.
``I would be opposed to outright repeal without some revenue from other sources,'' Chafee, who supports a compromise, said in an interview.
Arizona's Kyl and Democratic Senator Charles Schumer of New York have been working on a compromise that would raise exemptions, Chafee and Democratic Minority Whip Richard Durbin of Illinois said. Kyl said he has had talks on the issue with Schumer but wouldn't elaborate.
Taking Sides
Grassley said that if Republicans can't get the 60 votes for an outright repeal, he favors having an exemption of ``no less'' than $5 million, and ``higher would be better.'' He said he also wants a tax rate that is close to that on earnings. ``You shouldn't have a higher rate of taxation on an estate than you would on the money you make,'' he said.
The repeal battle pits some of the Republican Party's strongest business supporters against each other. The National Federation of Independent Business is joined by the Chamber of Commerce, the National Association of Manufacturers, the National Association of Wholesale Distributors and other Washington-based trade groups.
Opposing repeal and supporting compromise is the American Council of Life Insurers trade group, which counts New York Life Insurance Co. and Milwaukee-based Northwestern Mutual Life Insurance Co. as members. Insurers stand to lose up to $12 billion in annual premiums if the tax is eliminated, because they sell policies that can be used to pay for the tax.
