Estate tax becomes focal point of tax extension debate

By Karoun Demirjian

Thursday, Dec. 16, 2010 | 8:05 p.m.

The House was poised to stay in session past midnight Thursday to have a double-bill of votes on the tax extension package, an exercise serving both practical and political ends.

A large chunk of the House’s Democrats has staged a near-mutiny over President Barack Obama’s tax plan, and it’s all boiling down to one provision: an estate tax that’s been backed — almost drafted, in fact — by Nevada’s Democratic Rep. Shelley Berkley.

The estate tax is certainly not the central provision of the bill — that status would go to the greater Bush tax cuts, which are being extended in full for the next two years. Runners-up would then be the 13-month unemployment insurance extension and the temporary Social Security tax holiday for workers — 2 percent off for all of 2011.

But the estate tax has emerged as the focal point of the debate, with lawmakers staking out their sides over how high to set the rate and exemption levels.

What’s presently in the bill isn’t technically Berkley’s language; it’s a compromise reached between Sens. Jon Kyl, the Republicans’ minority whip, and outgoing moderate Democrat Sen. Blanche Lincoln of Arkansas. But it’s a nearly identical reflection of language Berkley put into a bill earlier this Congress to set the estate tax at 35 percent, with an exemption on the first $5 million inherited; $10 million if filing as a couple.

Absent any action, the estate tax rises to 55 percent on Jan. 1. But Democrats would prefer setting a rate of 45 percent, exempting only the first $3.5 million, or $7 million for couples.

The difference? A total of 6,600 estates, representing $100 billion in tax revenue over ten years.

That makes it an obvious place to start making cuts, Democrats say, challenging the Republicans’ going rhetoric against spending.

“How can we look the American people in the eye and tell them we’re serious?” asked Maryland Rep. Chris Van Hollen, assistant to House Speaker Nancy Pelosi, questioning why Republicans were pushing back against a change.

That change comes to the floor as the first of several votes as a resolution to concur with the Senate-passed tax bill except on the question of estate taxes. That measure has come to be known as the Pomeroy resolution, nicknamed after the Democrat, Earl Pomeroy, who put it together.

If it passes, the bill goes back to the Senate, which then has to decide whether or not it can swallow the tax bill absent the lower estate tax rate and higher exemption ceilings.

But whether it does or it doesn’t, the House is also planning to vote sometime before midnight on the Senate-passed version of the bill.

If the first measure goes down, it’ll be a move of necessity: the House has to vote on tax legislation, and while it’s no guarantee it’ll pass, clearing the Senate’s version would at least send an extension of tax cuts and unemployment insurance to the president’s desk for his signature.

But if the estate-tax-modified “Pomeroy” version passes, it will be a political statement of the vitriol coursing its way through the Democrats’ camp.

“Members wanted it; they felt that voting for Pomeroy, or against it, didn’t really express their disdain for this piece of crap,” House Rules Committee Chairwoman Louise Slaughter of New York said Thursday night.

Despite the disputes, Nevada Democrats Berkley and Rep. Dina Titus are expected to vote for the measure.

Support from Republican Dean Heller is not a given, despite his support for the tax cut scheme in the bill. His office did not respond to several requests made this week to comment on the bill. But last week, a spokesman indicated he was still undecided.