Timber tax cut puts two U.S. senators in a tight spot

WASHINGTON -- For months, Washington Sens. Patty Murray and Maria Cantwell have argued, begged and maneuvered -- unsuccessfully -- to win a lucrative tax break for timber companies, a major source of jobs and political power in the Northwest.

And for just as long, Democrats Murray and Cantwell have repeatedly voted against full repeal of the estate tax, insisting that Republican proposals are an excessive gift to the super rich that will balloon an already enormous deficit. Instead, Murray and Cantwell have advocated more modest reform of a tax that, under current law, hits heirs of estates worth more than $2 million.

Now those unconnected issues have been joined in a make-or-break campaign by Republicans aimed squarely at Murray, Cantwell and a select few senators. In an effort to squeeze out the additional votes they need in the Senate to pass a major cut in the estate tax, Republicans added a timber provision that would exclude from the highest corporate tax rate 60 percent of timber sales for such companies as Weyerhaeuser and International Paper.

So far, the gambit does not seem to be working.

Murray and Cantwell have both said they are undecided about their vote, which is now expected after the Senate returns from the July 4th break. Their public comments on a bill the House passed June 22 have been underwhelming.

And that's not the only problem Republicans face. In a surprise move, GOP leaders in the Senate pulled the bill this week after failing to smooth over dissent within their ranks between conservatives who want a complete repeal and moderates who worry about the cost.

"I haven't made up my mind yet. I'm looking at what the bill will actually be," Murray said this week.

"I have some big concerns about the deficit and the continuing war in Iraq and the ramifications for how we balance the budget," she added.

Cantwell was non-committal as well, and she repeated her opposition to a complete repeal of the estate tax. Instead, she said she supports changing tax brackets to soften the impact on heirs who inherit tremendous wealth. Under the House bill, which is now pending in the Senate, the estate tax would disappear for 99.7 percent of all Americans who are now required to pay. And for those who face the tax, it would be much lower if the House bill becomes law.

In all, budget analysts say the House proposal would cost $280 billion in lost taxes over 10 years compared with $290 billion if the tax were removed in its entirety.

Congressional tax experts estimate that if the changes become law, only 5,100 estates would face taxation when the changes are fully in effect in the fiscal year beginning Oct. 1, 2011. The Internal Revenue Service levied taxes on more than 30,000 estates in 2004, the most recent figure available.

Tax officials in Washington state, meanwhile, say only 210 of Washington's residents face the tax as it's now written. The number is low because the law exempts farms and timberland if they constitute at least half of an estate's value.

"I'm not going to vote for that just because of the timber provision. We're still looking at it," Cantwell said in an interview.

Cantwell, who in the past has supported proposals to deeply cut but not eliminate the estate tax, suggested the effort coordinated by House Republicans was clumsy.

Neither she nor her staff were consulted about the timber provision, she said. And while Cantwell conceded she would be happy if the timber provision passed, it is not her highest priority tax issue. Changing the law to allow Washington residents to permanently deduct the state sales tax ranks highest on her wish list.

"I was more interested in the sales tax rollback," Cantwell said. When the timber provision was added, "We were kind of like, 'What?'

"Somebody on staff (in the House) looked at a list of what various people have asked for, and that's how it got in there. They went and looked down a list and said, 'What is something a lot of members are supporting?' They came up with that. Nobody talked to us. No one said, 'Hey, (what) would it take?' ... We were like, 'How did that get on there?' "

The behind-the-scenes plotting to kill the estate tax offers a window into how legislation gets passed, how favors are claimed, inducements offered and the power of an upcoming election is maximized to pull votes from unlikely places.

Adding to the intrigue is heavy Northwest interest on both issues.

Timber has long been a touchstone in the region, with lawmakers at all levels sympathetic to its survival. Meanwhile, the fight over the estate tax is defined by two prominent residents who have become bitter opponents.

Frank Blethen, owner of The Seattle Times, has made eliminating the estate tax his singular obsession. He has lobbied on Capitol Hill and used his media holdings to promote the cause. Meanwhile, Bill Gates Sr. has spearheaded an equally aggressive campaign to retain the tax. Gates, whose son founded Microsoft and is the world's richest man, has argued that it is the civic duty of extremely wealthy people to repay society.

Gates Sr. has a powerful ally in investor Warren Buffett, who last week again endorsed his support for the tax.

"I can't think of anything that's more counter to a democracy than dynastic wealth," Buffet said during a news conference in which he donated $31 billion to the Bill & Melinda Gates Foundation. "The idea that you win the lottery the moment you're born: It just strikes me as outrageous."

Republicans in the House hoped to exploit that history and especially the region's strong support for timber by tying the estate tax bill to the tax break on timber sales for Weyerhaeuser, International Paper and other forest products companies.

If successful, the gambit would yield a bonanza to timber companies worth millions and give Republican leaders a tax break they promised before the July 4 break.

It would also be a political victory for Murray and Cantwell in a state that has 45,000 timber-related jobs.

Not surprisingly, it's a tax break that Murray and Cantwell, as well as most of the lawmakers from Washington and Oregon, have embraced.

Last month, the entire Washington delegation, except Rep. Jim McDermott, sent a letter to the chairman of the House Ways and Means Committee, Rep. Bill Thomas, R-Calif., asking him to move the timber language.

The letter pointed out that the "forest products industry is very important to the economy of Washington state" and that the "U.S. tax code puts the U.S. timber industry at a distinct disadvantage against international competition."

The May 7 letter to Thomas followed a similar one sent in March to the chairman of the Senate Finance Committee urging Senate action.

Neither succeeded.