Senate passage of estate tax repeal sets stage for election-year showdown

By Mike Ferullo/CNN

July 14, 2000
Web posted at: 5:28 p.m. EDT (2128 GMT)

WASHINGTON (CNN) -- Congressional Republicans set the stage Friday for an election-year showdown by ignoring President Clinton's veto threats and passing a gradual repeal of the 84-year-old federal estate tax.

With nine Democrats joining the Republican majority, the bill to gradually phase out the so-called "death tax" passed the upper chamber by a vote of 59-39 -- short of the two-thirds needed to override a promised presidential veto.

"When this bill comes to my desk, I will veto it," President Clinton vowed in statement released after the vote. "I am disappointed that the majority in the Senate placed such an emphasis on passing such a large and regressive tax cut, while voting against the priorities of millions of American families."

The Republican plan would eliminate the federal taxes -- which affect approximately 2 percent of all estates -- over the next ten years at a cost of $115 billion. After 2010, the Treasury Department estimates the loss of the estate tax revenue would cost about $70 billion per year.

Sen. Tim Hutchinson, R-Arkansas.

The bill, which was approved by the House in June, would cut the top estate tax rate in 2001 and then gradually phase out all rates at or below 50 percent until the final repeal in ten years.

Supporters of repealing the federal tax, which has a top marginal rate of 55 percent for the wealthiest estates, argue it hinders investment and job creation; forces millions to do costly estate planning; and particularly hurts family farms and small business owners.

"The death tax is growing increasingly unpopular with the American people, and it's for obvious reasons," said Sen. Tim Hutchinson, R-Arkansas. "They know double taxation when they see it. They know that if they pay income tax, they pay capital gains tax, they pay sales tax, that it's absolutely, fundamentally, inherently wrong to make death another taxable event."

A summer campaign issue

Although Senate Republicans acknowledged that passage of the bill has little more than symbolic value, it will likely provide the GOP with a potent summer campaign theme. The timing of the measure forces President Clinton to issue his veto just before the Republican National Convention opens in Philadelphia later this month.

Senator Phil Gramm, R-Texas

"The good news is that Congress has repealed the death tax, the bad news is the president says he's going to veto it," said Senator Phil Gramm, R-Texas. "But the good news is Bill Clinton is not going to be president next year."

Fellow Republicans vowed that Clinton's successor will have an estate tax bill on his desk. Texas Gov. George W. Bush, the all-but-certain GOP nominee, favors a complete repeal of estate taxes while his opponent, Vice President Al Gore, favors a more targeted measure favored by most congressional Democrats.

The estate tax was enacted in 1916 to help finance the costs of World War I and has been routinely modified since then to ensure that only the wealthiest estates pay the tax. Its elimination has remained on the House GOP leadership's agenda since the party took control of the chamber in the wake of the 1994 midterm elections.

An attempt to repeal the estate tax was featured in last year's $792 billion tax cut bill, which was vetoed by the president. This year, Republicans have broken apart the contents of that bill, and have attempted to push portions -- including a similar repeal of the marriage penalty tax -- through Congress in a piecemeal fashion.

Democrats: bill is break for the wealthy

Most Senate Democrats argued that the bill was nothing more than a break for the wealthiest Americans, and predicted it would drain so much money out of the government's coffers that priorities such as education and a prescription drug benefit for senior would go unrealized.

Sen. Edward Kennedy, D-Massachusetts

"Have you done anything for our school children, have you done anything for our parents, have you done anything about prescription drugs, have you done anything to make our health care system safer?" Sen. Edward Kennedy rhetorically asked his Republican collegues. "The answer to all of those is 'no, we have not.'"

During floor debate, Republicans defeated a $64 billion Democratic substitute bill that would have raised exemptions on the estate tax from the current level of $675,000 per individual to roughly $1 million by 2001. It also would have gradually increased the family-owned business exemption from the current $2.6 million per couple to $8 million per couple by 2010.

The Democrats' measure failed by a 53-46 vote mainly along party lines. Nine Democrats broke ranks with the president in supporting the GOP bill, which was opposed by four more moderate-leaning Republicans.

The Democrats who voted for the bill were Sens. Patty Murray, of Washington; John Breaux, Louisiana; Max Cleland, Georgia; Dianne Feinstein, California; Robert Torricelli, New Jersey; Ron Wyden, Oregon; Mary Landrieu, Louisiana; Blanche Lincoln, Arkansas; and Charles Robb, Virginia.

GOP Sens. Lincoln Chafee of Rhode Island, James Jeffords of Vermont, Arlen Specter of Pennsylvania and George Voinovich of Ohio voted against the Republican repeal.

CNN Producer Dana Bash and The Associated Press contributed to this report.