Death Tax Strategy
by Lew Uhler

The recent cloture vote in the Senate on HR 8 (permanent repeal of the death tax) held on June 8th was close – 57 of the required 60 votes – but no cigar. 

The Senate vote was neither the end of the world nor the end of the line.  Further cloture votes and other strategies – including forcing the Democrats to an actual filibuster – were being discussed, and we had to redouble our efforts to get Senators George Voinovich and Lincoln Chaffee to produce a solid party position.  The Democrat leadership had to exert such pressure on several Members to vote “no” that they were sitting on a very unstable situation.  Sen. Maria Cantwell is being taken to task on this issue by her Senate challenger.  Patience on our part is a virtue.

Patience is not the long suit of everyone in Congress.  Within minutes of the Senate vote, as we were exiting the Capitol, I happened to run into Ways & Means Committee Chairman Bill Thomas, who was making his way hastily to the Senate.  He knew the vote count.  I said, “We want and still think we can get full repeal.”  He said, “No, you won’t.  We need a compromise.”  I said “Give us a little time to get our strategy worked out.”  Dismissing that out of hand, he hurried away.

Remember, the House voted overwhelmingly for full permanent repeal more than a year ago.  There was no reason to believe that in a conference committee, dealing with HR 8 and some opposing result in the Senate, the House conferees would have to budge from the position of full repeal.  The House should have been our anchor to windward.

Behind the scenes, and presumably without consultation with Senate Democrats, Thomas fashioned his own deal on HR 5638.  No hearings were held or even discussions with key players.  (We do know Sen. Jon Kyl went to the House and met with Thomas in his office.)  This was a classic case of a “rush to judgment,” on a timeframe totally unnecessary for addressing the issue at hand.  Why the House leadership went along – and the Republican Study Committee did not object vehemently – makes the vote on this bill a sad commentary on the state of our movement.

Consider:
A firm House position based on principle was abandoned.

The overwhelming support of the American people for killing the death tax – because it is unfair and immoral – was ignored.

The power of the state to intervene with property rights at death was embraced by Republicans – and with progressive rates, yet.

Politically, the House:

• Rode to the rescue of a dysfunctional Senate and of a troublemaking minority, instead of holding their feet to the fire.  Based on this precedent-setting action, there is no reason the House should not unilaterally change its immigration and other bills with which the Senate disagrees.
• Emasculated the death tax as an issue with incredible power at the polls (witness Daschle).
• Opened the door to a bidding war in the Senate in which the savings to the estate taxpayer will be diminished even further.
• Capitulated to the power of the life insurance industry and the other special interests that feed off the estate tax.

Functionally, this measure:

• Keeps the death tax in place so Democrats can restore the higher rates and reduce the exemptions when they return to power (the Bill Beach argument).
• Has done little to simplify estate planning and perpetuates the need for contentious appraisals and other interventions by the IRS at death.
• Is likely to make it harder to repeal the capital gains tax entirely because, with the death tax receipts tied to that tax, the Joint Committee on Taxation will calculate that the “cost” would be prohibitive.

Where do we go from here?  Bill Thomas’s rush to judgment has been motivated by his belief that Republicans may lose seats in November – maybe even control of Congress – and we need to deal while we control things.  Ironically, this may be a self-fulfilling prophecy if the abandonment of a principle by Republicans convinces the voting public that there is not a dime’s worth of difference.  We don’t doubt Thomas’s sincerity, only the wisdom of his conduct and strategy.

Senate Republicans who voted for full repeal should continue to insist on that position, as the Democrats seek to water down the Thomas rates and exemptions, using the process to highlight the real intentions of the liberals.

I would personally benefit from the Thomas rate/exemption plan, with an overall tax reduction per the calculations made by Dan Clifton (ATR).  But no death tax would be even better – a principle and a promise we owe our supporters.

Lew Uhler is chairman of the National Tax Limitation Committee.

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