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House Proposes Eliminating the 'Death Tax'

The repeal would cost $1 trillion over 20 years, which is why it isn't likely to pass the Senate.

In its unyielding devotion to President Bush's economic agenda, the House of Representatives voted today to make the repeal of the estate tax permanent.

Under current legislation, signed by President Bush in 2001, the estate tax will be gradually phased out until it's fully repealed in 2010. The size of an estate that can avoid tax will rise to $3.5 million by 2009. That means anyone who dies in 2009 can leave up to $3.5 million to any heir completely tax-free. (Bequests of any size can always be left tax-free to a spouse or charity.)

Republicans have long advocated the repeal of the estate tax, and President Bush has championed the notion since his presidential campaign.

In 2010, the estate tax disappears completely -- until it comes back a year later, like the sequel to a bad summer movie.

Like this year's tax law, virtually everything in the 2001 law came with a sunset provision -- meaning every break had an expiration date at which time the "old" tax law would come back into effect. The scheduled phase-out and repeal of the estate tax has a 10-year sunset, which means that in 2011 the estate tax will be back in effect. That is, unless Congress agrees to make the repeal permanent.

But that's going to be problematic. The House voted

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last year to make the repeal of the estate tax permanent, and the Senate gave that notion a big thumbs-down. This year is not likely to be any different.

The estimated 20-year cost of a full repeal of the estate tax is "a stunning $1 trillion," says Gary Bass, executive director of OMB Watch, a nonprofit watchdog group covering the federal Office of Management and Budget. "It's totally irresponsible of the House. They're giving tax breaks to the rich at the expense of schools, prescription drug benefits, homeland security and other programs communities care about."

Less than 2% of all estates owe any sort of tax.

In voting in favor of the "Death Tax Repeal Permanency Act of 2003," the House unequivocally shut down an alternative bill that favored a larger exemption, but didn't advocate a permanent repeal. North Dakota Democrat Earl Pomeroy had sponsored a bill that would have made estates less than $3 million wholly exempt from tax immediately.

That sort of compromise is likely to be revisited in the Senate. A permanent repeal of the estate tax requires 60 votes in the Senate, and the Republicans just don't have the numbers. (They didn't have it in 2001, either, which is why the sunset provision had to be attached. Tax law that affects the budget for more than 10 years needs 60 votes in the Senate to pass; hence, the 10-year sunset.)

The estate tax issue will undoubtedly raise hackles in the Senate, even among Republicans, such as Arizona's John McCain, Maine's Olympia Snowe and Rhode Island's Lincoln Chaffee, all of whom bristled at the 2003 tax cuts. "Once they reach a stalemate in the Senate, they'll have to think about reform options," Bass says. "But right now the Republicans aren't thinking about reform or compromise."

Deficit hawks in the Senate may not make compromise easy, either. "The revenue loss is not insignificant," says Wayne Zell, a tax attorney with Mintz Levin in Reston, Va. "And with today's ever-growing deficit, it's difficult to justify a tax imposed on a very small percentage of the population -- especially since that small percentage represents those with the greatest wealth."