Estate Tax Fight Hinges on Money, Morality ; Senate Action Is Key, as Jon Kyl Pushes a Compromise Plan This Month, Making Most of the Tax Cuts Permanent

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Opponents call it the "Paris Hilton Benefit Act." Supporters wax lyrical about abolishing the "death tax."

The wordplay is one indication that the Washington dispute over what to do with taxation of estates has become, to a degree, a moral argument.

And the volume of debate is rising, as Congress considers legislation that would permanently repeal the estate tax - affecting the Hilton Hotel heiress, other less visible millionaires, and the size of the federal budget deficit.

The issue arises from the 2001 tax-cut bill. That legislation gradually raises the value of an estate exempt from the tax, so that fewer people have to pay the tax over time. By 2009, only estates valued at more than $3.5 million will be taxed, and the legislation wipes out the tax entirely for 2010. But at the end of that year, the 2001 law's estate tax provisions "sunset." So the tax is reinstated in 2011, with an exemption for estates worth less than $1 million.

Tax cutters in Congress don't like that possibility. On April 15, the House passed a law making permanent the full repeal by a vote of 272 to 162.

But the Senate is another story. There, the Republican leadership has had difficulty rounding up the 60 votes necessary to avoid a filibuster. Sen. Jon Kyl (R) and other Republican leaders are pushing for resolution of the issue this month.

Hoping to win some Democratic support, Senator Kyl has suggested a compromise plan that would set the exemption at $8 million per individual and a top estate tax rate equal to the rate for capital gains, which is 15 percent.

The compromise hasn't won many converts among supporters of the estate tax. One group, United for a Fair Economy, has been running an ad in Oregon newspapers hoping to pressure Sen. Ron Wyden (D) to vote NO on repealing the tax.

"Should we fire 1,000 more teachers?" the ad asks. "Cut healthcare? Slash Social Security? And give the money to a few millionaires?" And Ms. Hilton gets her picture in the ad with a "no comment" cutline.

Ten years ago, repeal of the estate tax was regarded as a long shot. In his 1994 "Contract with America," Rep. Newt Gingrich (R) called only for a modest raise in the exemption.

Since then, the Republican antitax movement has joined with those morally opposed to the estate tax itself to convince many Americans that it is a problematic tax, explains Michael Graetz, a Yale Law School tax expert who has coauthored a book on the politics of the repeal drive.

The repeal campaign has had financial backing from many of what Professor Graetz calls "grass-tops supporters" - as opposed to grass- roots supporters. "Most of the money came from very ... wealthy holders of portfolio assets," he says.

Opponents of the estate tax say it is "double taxation" on income already hit by income taxation. But Graetz notes that most Americans face triple taxation - payroll taxes, income taxes, and sales taxes.

Both sides of the debate often frame their arguments in terms of morality. As Senator Kyl's website puts it: "The death tax is fundamentally unfair. …


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