Senate Democrats Drop Key Estate Tax Proposal

In an attempt to shore up support for President Obama tax plan, Senate Democratic leaders are eliminating a key provision to tax wealthy estates.

Democrats could not reach a consensus in the Senate Democratic Caucus over how much to tax estates transferred after a person’s death, prompting Senate Majority Leader Harry Reid to inform senators Thursday that he’d drop that provision. The bill would now cost $250 billion, down from the $272 billion, one-year cost of the original proposal, aides said.

“The majority leader wanted to focus on the middle-class tax relief,” Sen. Dick Durbin (D-Ill.) told reporters.

While the Obama tax bill has no chance of winning the 60 votes needed for passage, Democrats want to build at least a simple majority so they can point fingers at Republicans for protecting wealthy families at the expense of tax breaks for the middle class. Anything less than 50 votes would reflect poorly on the president.

Obama says he wants to let the Bush tax cuts expire for households with income over $250,000, and extend the rest of the rates for one year. Republicans want to extend all of the tax rates for everyone for one year, warning that any tax increase would have a negative effect on an already anemic economic recovery, a notion the president himself agreed with when extended the Bush tax cuts back in 2010.

A vote is expected next week on the Democratic plan, and Reid is confident Democrats will muster at least 50 votes, especially after dropping the estate tax provision. Sens. Jim Webb (D-Va.) and Joe Lieberman (I-Conn.) both have announced they would oppose the Obama plan.

The original version of the Senate Democrats’ tax legislation would have set the maximum tax rate of an estate valued at more than $3.5 million at 45 percent. Right now, there’s a 35 percent rate for estates worth more than $5.12 million. If Congress doesn’t act, estates worth $1 million will be hit with a 55 percent tax rate next year. Republicans have labelled the estate tax, the “death tax.”

To strengthen their arguments for extending all the current rates, Senate Republicans on Thursday circulated a study by the nonpartisan Joint Committee on Taxation that showed there was a mere $28 billion difference between the GOP proposal and the Democratic plan, which would end the current rates for household income of above $250,000. That difference, Republicans noted, equaled how much the government spends in a mere three days.

“The American people deserve better than to have the president and his allies threaten to melt down our economy for what amounts to less than three days of federal spending,” said Utah Sen. Orrin Hatch, the top Republican on the Finance Committee.

Sen. Chuck Schumer (D-N.Y.) dismissed the report as a “smokescreen” by Republicans.

“The truth is, if we decouple the tax cuts for those earning above $250,000, that means they will be gone for good,” Schumer said in a statement. “Over 10 years, that will reduce the deficit by $800 billion compared to what Republicans want to do.”



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