Death tax diagnosis

Senate Minority Leader Harry Reid’s designation of Sen. Charles Schumer, New York Democrat, to be his chief negotiator on the Death Tax issue is extraordinarily revealing.

The Democrats are scared to death of the issue which provided the margin of defeat for Tom Daschle and has become a powerful issue in other states, as well. The marching orders to Mr. Schumer, the Democratic Senatorial Campaign Committee chief, are to defuse the issue before it takes down other small red-state Democrats up for re-election in 2006.

Apparently Mr. Reid and company have been reviewing the polls that portend disasters in certain states for votes to keep the death tax. Recently, Frank Luntz polled in Maine, North and South Dakota, Indiana, Colorado and Arkansas and found 85 percent support for killing the death tax outright or significantly reducing it. These are states in which small family businesses, ranches and farms dominate the landscape. Hence, the Schumer proposal for a “compromise” solution, exempting “small family businesses.” They have the lingo down pat on the death tax, but not the solution.

Only one problem. Neither the “fix” nor the politics work — unless, of course, Senate Republicans fall for the Democrat line there aren’t 60 votes to “Kill the Death Tax.”

(1) The “fix” is a retread of Arkansas Democratic Sen. Blanche Lincoln’s S. 34, which seeks to re-enact IRS Code 2057, repealed in 2004, possibly the most complex estate section in the code. Recent analyses have demonstrated the proposal would provide relief to only about 5 percent of small businesses. And it perpetuates the need to value small businesses upon the death of the owner, always the most protracted and unfair part of the dance with the tax collector.

(2) The votes. There are at least 52 Republicans — and possibly more — who will vote to “Kill the Death Tax” both permanently and immediately. (Some older folks can’t wait until 2011 to “Kill the Death Tax.”) This was the objective of the “Kill the Death Tax” coalition’s Senate campaign last fall, endorsed by Sens. William Frist of Tennessee and George Allen of Virginia and other Republicans leaders.

A concern expressed by some Republicans is that killing the death tax will reduce federal revenues and increase the deficit. But virtually every study over the years has concluded that if assets are passed through to heirs at the decedent’s tax basis less a modest exemption, the capital gains revenue generated by the heirs’ voluntary sale of assets will more than make up for the relatively minuscule tax revenues from the death tax (just over 1 percent of total annual federal revenues.)

The deficit issue won’t provide political cover for the “born again” Democrat deficit hawks. Seven Democrat senators have on one or more occasions voted to “Kill the Death Tax.” And the people in those several states where Democrats are up for re-election in ‘06 and ‘08, want the death tax dead. The specter of Tom Daschle hangs heavy over senators like Max Baucus of Montana, Kent Conrad of North Dakota, Tim Johnson of South Dakota, Maria Cantwell of Washington and others.

There are several ways to reach 60 votes for permanent and immediate termination of the death tax. To achieve the magic number will require campaigns in selected states (like the one in South Dakota), at straight up or down vote and no compromise with Messrs. Reid, Schumer and company.

“Kill it, don’t wound it” has been the battle cry. Unless it is killed “Black Flag Dead,” so no vestige of it remains, the Death Tax will return to haunt us. We must not allow that.

James L. Martin, president of the 60 Plus Association, and Lewis K. Uhler, president of the National Tax Limitation Committee, have been very active in the campaign to kill the death tax.