Estate tax part of compromise rankles with Arizona Democrats - East Valley Tribune: Politics

Estate tax part of compromise rankles with Arizona Democrats

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Posted: Monday, December 13, 2010 12:00 am | Updated: 1:31 pm, Tue Dec 14, 2010.

WASHINGTON -- The future of tax cuts for the living could hinge this week on how much members of Congress feel the dead owe the government.

A provision in the deal President Obama cut with Republicans, engineered largely by Arizona Republican Sen. Jon Kyl, would exempt any estate worth less than $5 million from federal taxes. Everything above that would be taxable at 35 percent.

Rep. Raul Grijalva, D-Ariz., chastised Republicans for pushing something that would benefit only the richest of Americans -- and only a few of them at that.

"It only serves 39,000 families,'' he said, at the cost of cutting revenues this coming year by about $23 billion, money Grijalva said the is needed for public services.

Rep. Gabrielle Giffords, the other Southern Arizona Democrat, is on record as supporting an estate tax exemption far smaller than the Obama-GOP deal.

Hanging in the balance is the deal to extend for two years the Bush-era cuts in personal income taxes. The first test vote in the Senate is set for Monday with a final Senate vote later in the week.

Obama conceded that goes against his promise during the 1998 campaign to let those expire for those earning more than $250,000 a year. But he said there was no choice, saying it was the only way to continue the tax cuts for everyone else, plus get a 13-month extension of jobless benefits and a temporary payroll tax cut.

"As with every compromise, everybody had to live with elements they didn't like,'' he said Saturday. But Obama called it "a good deal for the American people.''

Kyl has been at the forefront of making what he calls the "death tax'' part of the package because doing nothing creates its own problems.

Congress voted during the Bush administration to phase out the tax. Last year it was 45 percent for anything over $3.5 million; right now the rate is zero.

But that same law repeals that repeal next year: Without action, the tax rate shoots back with a top rate of 55 percent with an exemption for just the first $1 million.

The Kyl plan brings the tax back -- but only for a few: It provides a $5 million exemption for individuals and $10 million for couples, with a tax rate of 35 percent. The senator said both the exemption and the rate are justified.

"A $5 million estate is not hard to accrue if you have a business or if you have land and equipment,'' Kyl said. And he said the 35 percent figure virtually mirrors the top rate on both individual and corporate income taxes.

According to the Tax Policy Center, the plan Obama agreed to with the Republicans would mean 3,500 taxable returns next year and total liability of $11.2 billion.

Giffords has supported what Democrats are now offering as their own option: Make those 2009 rates permanent. That would make for 6,400 taxable returns and $18.1 billion in revenues.

Giffords press aide C.J. Karamargin said the congresswoman wants a "fair and just estate tax exemption.''

Kyl press aide Ryan Patmintra said his boss was not interested in talking about the Democrats' alternative.

"Those who support full repeal of the 'death tax' like Sen. Kyl maintain the position that the tax is unfair since the government is taxing assets that were already taxed when they were earned,'' Patmintra said.

Anyway, he said the provision in the deal with Obama is not partisan: An identical provision co-sponsored with Arkansas Democratic Sen. Blanche Lincoln passed the Senate last year.

For the record, doing nothing -- returning to that $1 million exemption and 55 percent rate -- generates $34.4 billion on 44,200 returns.

Grijalva said the deal Obama agreed to on the estate tax is symptomatic of the problem with the entire package.

"The opinion of the majority of us is the president caved too early in the negotiations,'' he said. Grijalva said Obama could -- and should -- have negotiated a better deal.

The White House has sought to tone down talk among recalcitrant House Democrats about killing the plan.

"If we don't get something done this year I think everyone will be blamed,'' press secretary Robert Gibbs said last week. He also tried to dissuade Democrats from trying to renegotiate the deal.

"If everybody took out what they didn't like, we would have nothing,'' he said.

Giffords said an informal vote last week by House Democrats against the plan was no surprise.

"Members are outraged,'' she said. "They have a right to be.''

Giffords said she is particularly concerned that the $900 billion package -- including $70 billion her office says would go in tax relief to those at the top of the income scale -- will dig the deficit hole too deep.

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