- The Washington Times - Thursday, April 5, 2001

The House yesterday passed one of the final pieces of President Bush's tax-cut plan, even as the White House suffered two tax-cut setbacks during the Senate's debate of the 2002 budget.

In the House, a 274-154 vote passed legislation that would repeal over the next decade the estate and gift tax.

In the Senate, a centrist Republican senator declared against Mr. Bush's tax-cut plan and helped pass an amendment to reduce to $1.15 trillion the amount of tax cuts allowed by the budget.

The House-passed measure would save beneficiaries $186 billion through 2011, but nearly six times that amount in the decade after.

"This is the most unfair, obscene and immoral tax," Rep. Philip M. Crane, Illinois Republican. "No American should have to pay 55 percent of his or her savings, business or farm when he or she dies."

The estate tax effectively begins at 37 percent on estate assets over $675,000 and builds to 55 percent on estate assets over $3 million. About two percent of all estates will owe taxes in any given year.

"After all the loopholes, all the deductions, and all the exemptions the estate tax paid is roughly 20 percent," said Rep. Michael E. Capuano, Massachusetts Democrat.

A person receiving a $20 million estate would pay, on average, $4 million in estate taxes, Mr. Capuano said.

That means, Mr. Capuano said, "that person walked away, without doing anything, just by the luck of genetics, with $16 million. I think they'll be able to survive."

Republicans agree that the very wealthy might be able to afford the tax, but that those hurt hardest are in the middle.

They say the tax forces children to sell the small businesses and farms created by their parents and represents an unfair tax on money and assets that have already been taxed before.

Democrats concede the tax should be revised, but they, and some Republicans, say that an outright repeal goes too far.

Rep. Benjamin L. Cardin, Maryland Democrat, said that small business owners who come to lobby him leave his office convinced the Democratic alternative is better.

The Democratic plan would immediately increase the current $675,000 estate-tax exemption to $2 million for an individual, $4 million for a married couple. Democrats argue their plan provides more relief for smaller estates than the Republican plan, which begins to phase in by lowering the top rates first.

"They'd rather have $4 million now than a promise 10 years from now," Mr. Cardin said.

Republicans argued that the Democratic plan fails because it leaves the estate tax in place.

"If you leave any part of this tax intact, it will grow back," said Rep. Jennifer M. Dunn, Washington Republican.

She also defended the decision to phase in the repeal of the estate tax. "The reason we phase it in is because we want to make it easier to accept the loss of revenue."

The measure would be worth about $4 million in 2002, but about $49 billion in 2011.

Meanwhile yesterday, centrist Sen. James M. Jeffords dealt the president's tax plan two sobering blows.

First, the Vermont Republican became the second party member to announce he cannot support the president's $1.6 trillion tax-cut plan.

Mr. Jeffords joined a small group of Republicans and Democrats backing a $1.25 trillion tax cut, splitting the difference between the $900 billion proposed by the Democratic leadership and the $1.6 trillion offered by the president.

Sen. John B. Breaux, Louisiana Democrat and leader of the group, said that their votes assured neither the Democratic nor the Republican plan could pass and that the two parties would now be forced to negotiate.

Mr. Jeffords said his opposition to the Bush budget was largely fueled by a desire to provide $180 billion over the next decade for special education.

He had neared an agreement with White House and Republican leadership negotiators that would have provided $154 billion instead, but the deal fell through on whether the money would be subject to annual appropriation or become an entitlement, as Mr. Jeffords wanted.

"Well, unless a miracle occurs, I fear that I am … bending in that direction," Mr. Jeffords said when asked whether he would vote against the budget and its $1.6 trillion tax cut.

Minutes later he joined two other Republicans backing an amendment offered by Sen. Tom Harkin, Iowa Democrat, that would reduce the proposed tax cut plan from $1.6 trillion to $1.15 trillion. The money in Mr. Harkin's proposal unrelated to the plan set out by Mr. Breaux instead would increase education spending by $250 billion and reduce the debt by an additional $200 billion.

Senate Majority Whip Don Nickles, Oklahoma Republican, called the 53-47 vote, which is not a vote on actual changes in the tax code, a setback, but said he expects to "restore some of the tax cut, hopefully all."

Minutes later, he joined two other Republicans backing an amendment that would reduce the proposed tax-cut plan from $1.6 trillion to $1.1 trillion by setting aside $250 billion for extra education spending and another $250 billion for further debt reduction.

Mr. Jeffords and Sens. Lincoln Chafee of Rhode Island and Arlen Specter of Pennsylvania were the sole Republicans to vote for the amendment. Sen. Zell Miller of Georgia was the only Democrat to oppose it.

Senate Majority Leader Trent Lott, Mississippi Republican, voted against the amendment, but switched his vote at the last minute to assure that he could have the vote reconsidered later. That brought the final tally to 53-47.

"This is a huge victory," said Senate Minority Leader Tom Daschle, South Dakota Democrat. "It's the first time the Senate has gone on record in opposition to the size of the president's tax cut. The president must negotiate with us for a better budget."

Fellow Democrat Sen. Max Baucus of Montana was less bold, saying Mr. Jeffords' support and vote were good news, but adding, "there are a lot of moving pieces. There is a lot in play."

Senate Budget Committee Chairman Pete V. Domenici, New Mexico Republican, said he had been counting on Mr. Jeffords' vote to help pass the bill, but "it's not the end of the world."

An administration official said there were still other votes that could be gained, including that of Sen. Ben Nelson, Nebraska Democrat, who despite joining Mr. Jeffords, Mr. Breaux, and others in support of the $1.25 trillion tax cut, has so far refused to say how he will vote if the final budget provides room for Mr. Bush's entire $1.6 trillion tax-cut plan.

• Dave Boyer contributed to this report.

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