Tax Scramble Jude Wanniski and Karen Kerrigan June 29, 2000

A consensus seems to be developing in Washington that the estate-tax issue is setting up for the elections and more meaningful action next year -- although there are those who still believe the White House may have to raise the white flag in deference to the political popularity of repeal. Senate Majority Leader Trent Lott still is determined to get an up-and-down vote on the House-passed repeal of the estate tax when the Senate returns from its recess on July 10. He will file a cloture petition if there is no agreement on procedure and a Democratic alternative. If Lott wins, it will be up to the President (and Al Gore and Hillary Clinton), who will have to decide whether to make a deal and be done with it, or fight it out on the hustings. Depending upon the success of the grass-roots effort during the recess, Lott may be more emboldened to take a hard line with Senate Minority Leader Tom Daschle -- who is dead set against repeal -- if the interaction between constituents and lawmakers is intense and measurable.

The Democrats of course will try to divide the Republicans by offering the kind of deal the House rejected, an increase in the exemption that will tempt those small-business lobbies -- like the National Federation of Independent Businesses -- who prefer repeal, but who have in the past accepted incremental reforms. A $5 million exemption would cover 95% of estates. Those representing big wealth and the hard-and-fast supporters of repeal in the capital-formation lobbies fear that an exemption as high as $5 million would be labeled a “millionaire’s tax” making it harder to repeal in the future. Lott easily could split the death tax coalition and get a number of groups to support the $5 million exemption, especially if the rates are cut back by 20%, as they were in the Democratic alternative offered and rejected in the House. We doubt this outcome because Lott wants a recorded vote on repeal even if he loses. In the same way, the most political of the Democrats really do not want a prescription drug entitlement passed this year -- wanting it as a wedge issue in the elections. The death tax issue may hold the same value and appeal for the GOP.

In this light, there are other constituent groups that have more interest in IRA and pension reform than in estate-tax repeal or relief. They are plugging away for an increase in the amount of the Roth IRA, to $5,000 per year from $2,000, and believe they will be able to get it into the second reconciliation bill in September. There is no ideological opposition to this legislation, as the relevant House bill now has 91 Republican and 89 Democrat co-sponsors. These folks more or less are assuming that the estate-tax issue is just for political show this year. Yes, Treasury coffers are swollen with ever-increasing revenue flows, but there are countless claims on them by spenders, tax-cutters, and debt reducers. When Clinton saw momentum building for action on the estate tax, with Lott originally planning the critical vote for today, the President said he would support fixing of the marriage-tax penalty in exchange for prescription drugs. This threw Lott off stride, although he now seems determined to recover. He will have a press conference tomorrow to hit the right notes.

The issue is literally in the hands of the national electorate. If they make enough of a fuss over repeal at the July 4 picnics and town meetings when they run into their Democratic or Republican officials and congresspersons, there could be a big deal in two weeks. The President would have to find a creative way to concede in order to help save Al Gore and Hillary. If he can, he would do it easily and take credit for the whole shebang.