- The Washington Times - Wednesday, March 14, 2001

Senior Senate Republicans yesterday said that a major revision to the repeal of the estate and gift tax could make room to increase other tax breaks under the $1.6 trillion limit set by President Bush.

The proposal from Sen. Jon Kyl, Arizona Republican, would keep Mr. Bush's plan to repeal the estate tax over 10 years, but it would increase the amount of capital gains taxes paid if an inheritor decided to sell some or all of his inheritance.

Congress passed a less-generous version of the Kyl bill last year but President Clinton vetoed it, a fate top Senate Republicans said they do not expect now.

"I don't think the president would have a big problem with it," Sen. Orrin G. Hatch, Utah Republican, said of revising the president's plan.

Senate Majority Whip Don Nickles, Oklahoma Republican, said the change would make the estate-tax repeal "affordable, defensible."

Specifically, the Kyl bill would require inheritors to use an asset's original purchase price rather value at the time of inheritance when calculating capital gains. A major exemption in the Kyl bill would let inheritors exclude from taxation up to $2.8 million in capital gains on inherited assets.

Mr. Bush's proposal would continue the current rule, which uses value at inheritance for calculating capital gains.

"They're both eliminations, they just do it differently," Senate Republican Conference Chairman Rick Santorum of Pennsylvania. "You still get a phaseout, still get elimination, but you do it in a less costly way," Mr. Santorum said of Mr. Kyl's proposal.

The White House, however, made no effort to embrace the Kyl revision.

"The president is committed to the tax-relief plan he outlined," said Scott McClellan, deputy White House press secretary. "When the president developed the tax plan, he looked at the inequities in our tax code and the unfairness, and made his decision based on that."

Senate Minority Leader Tom Daschle, South Dakota Democrat, called discussion of the revision, which now sits before the Senate Finance Committee, an encouraging development.

Several Republicans, including Finance Committee Chairman Charles E. Grassley of Iowa, have said the less-expensive estate-tax repeal would create room in the $1.6 trillion tax-cut plan for other tax-cut priorities.

First on that list, Mr. Grassley said, would be language to assure that the alternative minimum tax (AMT) did not erode the benefits to the poor of Mr. Bush's plan.

Democrats have made political hay of the AMT, and Mr. Daschle said limiting estate-tax breaks to address Democratic concerns is a good sign of a willingness to compromise.

But Democrats were chagrined that Senate Budget Committee Chairman Pete V. Domenici, New Mexico Republican, now intends to stick with Mr. Bush's spending limits when writing his budget blueprint for the Senate.

Mr. Domenici has said that the 4 percent spending increase from 2001 to 2002 would not be enough to meet the nation's governmental needs. He has been particularly critical of proposed cuts to Energy Department programs made necessary by proposed substantial increases in other programs such as defense and health research.

But yesterday morning he told a group of reporters that he will write a budget resolution that reflects the president's budget proposal "as best as we can."

That will likely mean bringing the budget to the Senate floor without an approving vote from the Senate Budget Committee. Democrats share control of that committee and are not expected to vote for the Republican budget.

Despite his misgivings, Mr. Domenici said he will continue to defend the president's budget during debate on the Senate floor. But, Mr. Domenici said, he will "let the Senate work its will."

Meanwhile yesterday, House Budget Committee Democrats circulated a report that Mr. Bush's tax cuts, as well as increases in defense, education and medical research, would cut purchasing power by an average 6.6 percent in remaining programs next fiscal year.

But Republicans dismissed the report as misleading.

"It's the same idea that if you don't grow the budget of an agency or a department significantly every year, you're cutting it. We think that's wrong," said Brenna Hapes, spokeswoman for House Budget Committee Chairman Jim Nussle, Iowa Republican.

• Dave Boyer, Audrey Hudson and Bill Sammon contributed to this report.

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