Obama revises plan on tax cuts

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Sen. Barack Obama has already retreated on his pledge to undo part of President Bush's tax cuts, four months after the Illinois Democrat made the promise as part of his method for funding his health care plan.

As the 2008 presidential hopeful seeks to identify funding for his proposed policies, he is having to count on some tax increases that are almost impossible to push through — including returning the estate tax to its 2001 threshold, which includes estates of $1 million.

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That puts him at odds with almost every Democrat in Congress, including many fellow members of the Congressional Black Caucus, who say that low rate hurts black farmers and small-business owners, and who have voted for much larger thresholds.

When he announced his health care plan in May, Mr. Obama said the $50 billion measure could be funded by eliminating the tax cut for people making more than $250,000 a year and raising the rate on earned dividends, phasing out many corporate exemptions such as carried interest and reinstating some level of the estate tax.

Those changes would generate as much as $80 billion, the campaign said.

Many critics said Mr. Obama was playing math games when he proposed policies without identifying a funding source.

When Mr. Obama announced his $85 billion tax package last week, he said he would treat capital gains and dividends the same, increasing the rates equally but no higher than the 28 percent rate in place under President Reagan.

The proposal also would factor in eliminating the tax cut for those making more than $250,000 annually, cracking down on international tax havens and closing more corporate exemptions that the campaign views as loopholes.

"Senator Obama has been a consistent opponent of repealing the estate tax because he believes it is both fiscally responsible and morally right when ultimately the vast majority of people who benefit from these tax breaks are millionaires who do not need the money as much as middle class families struggling to make ends meet," said the campaign.

But the campaign is not sure whether the estate tax would return to the pre-2001 rates, with the government taking 55 percent of inheritances of $650,000 and higher or conform to other recent proposals.

J.D. Foster, economic policy analyst for the Heritage Foundation, said there is no money in the estate tax to fund programs without lowering the threshold significantly from the current level of $3 million per person and $6 million per family.

"The Congressional Budget Office revenue baseline assumes that the estate tax relief enacted in 2001 will disappear in 2011," he said. "You never know what will happen in 2009 and 2010, but what we do know is that there is a compromise waiting to happen ... but that compromise would never take the tax back to where it was in 2001."

Many Democrats decried Republican efforts in 2005 to repeal the tax, but it was clear that many Democrats saw value in helping farmers and small businesses keep the family livelihood after their parents had died.

Eight of the 42 Congressional Black Caucus' members in the House voted for a repeal: Reps. William Lacy Clay of Missouri; Sheila Jackson-Lee of Texas; Edolphus Towns of New York; G.K. Butterfield of North Carolina; William J. Jefferson of Louisiana; Sanford D. Bishop Jr. and David Scott, of Georgia; and Albert R. Wynn of Maryland.

Mrs. Jackson-Lee said she would "reassess" her position on the estate tax. "I think Democrats will make an intelligent decision and a fair decision, and I am looking for something fairer for small businesses and farmers," she said.

Democrats presented a substitute to the repeal offered by Rep. Earl Pomeroy of North Dakota that would hold the cap at $3 million per person and $6 million for families in 2006 and increase it to $3.5 million and $7 million, respectively, after 2009. Mr. Pomeroy said it would save $37 billion in revenue a year as opposed to losing $82 billion if it was repealed.

Republicans last year countered with a measure establishing the eligibility cap at $5 million per person and $10 million per family. Estates valued from $5 million to $25 million would have been taxed at 15 percent. Estates valued at greater than $25 million would have been taxed at 30 percent.

That proposal was rejected in the Senate. Mr. Obama voted against it.

"First of all, let's call this trillion-dollar giveaway what it is — the Paris Hilton Tax Break," he said in his opposition to the Republican measure. "It's about giving billions of dollars to billionaire heirs and heiresses at a time when American taxpayers just can't afford it."

The proposal passed in the House.