House votes to cut estate tax as it backs off ban

WASHINGTON -- The House voted Thursday to cut taxes on inherited estates and relieve thousands of heirs from paying tax collectors beginning next decade.

The 269-156 vote, just a few months before an election with control of Congress at stake, saw majority Republicans temporarily setting aside their ambition to abolish the tax.

Instead, they voted to exempt from taxation individual estates up to $5 million and couples' estates up to $10 million, while also blunting the impact on even richer families. The compromise measure now goes to the Senate.

The White House said the bill was "a step in the right direction."

Congressional tax experts estimated that if the changes become law, only 5,100 estates will 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.

However, the bill also would restore estate taxes in 2010, deleting what had been a one-year reprieve from them entirely under an earlier law.

Two of Washington state's six Democrats -- Brian Baird and Rick Larsen -- joined the state's three Republicans in voting for the bill.

President Bush and Republicans in Congress have long pressed to abolish the estate tax, contending it is unfair to tax businesses and farms left to the next generation.

"Americans are being taxed almost every moment of their lives. My goodness, when they are dead, do we have to tax them again?" said House Majority Leader John Boehner, R-Ohio.

Democrats argued that it is more unfair to give millionaires a tax cut while denying thousands of poor workers a higher minimum wage.

"This is the ultimate values debate," said House Minority Leader Nancy Pelosi, D-Calif. "It is morally wrong to do this, especially when we are turning down, rejecting, an increase in the minimum wage."

In 2001 Bush and Republicans had succeeded in killing the estate tax for one year, 2010. But the tax would have reappeared in 2011 at a rate of 55 percent under Bush's initial tax cut package.

The House bill would replace that temporary law by reducing, but not eliminating, the estate tax. It responds to a plea for help from Senate GOP leaders, who discovered earlier this month they did not have enough votes to abolish the tax.

That forced lawmakers to talk compromise, but GOP tax writers, under pressure from the House's most conservative Republicans, said they wouldn't negotiate further than the offer made in the bill.

"This is not a first offer. It is the only offer," said House Ways and Means Committee Chairman Bill Thomas, R-Calif.

The exemptions, $5 million for an individual and $10 million for a couple, would increase automatically each year to keep pace with inflation.

After the exemptions, estates worth up to $25 million would be taxed at rates equal to those on capital gains, currently 15 percent but scheduled to rise to 20 percent in 2011.

The remainder of any larger estates would be taxed at rates twice that of capital gains, or 30 percent at first and 40 percent when the scheduled capital gains tax increase takes effect.

The bill would let a surviving spouse take any unused portion of a deceased spouse's exemption, but it also would eliminate the federal deduction for estate and inheritance taxes levied by states.

The Joint Committee on Taxation estimated that the tax reductions amount to roughly $283 billion from 2006 to 2016.