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Obama tax deal: why estate tax is the new sticking point

House Democratic leaders set very tight rules for debate of the Obama tax deal Thursday, and rank-and-file Democrats revolted. Their main frustration now: the estate tax.

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Much of the frustration centers around the terms of the estate tax in the Senate bill. It sets an estate tax exemption at $5 million ($10 million for a married couple) and a maximum rate of 35 percent. House Democrats want to return the estate tax to 2009 levels: an exemption set at $3.5 million and a maximum rate set at 45 percent.

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Lead sponsor Rep. Earl Pomeroy (D) of North Dakota says that this change would save $23 billion and affect only 6,600 estates in 2011. “These 6,600 estates would receive an average additional tax cut of more than $1.5 million under the Senate bill,” he says.

Other Democrats favor some revision of the estate tax in the Senate deal. But they also suggest that if presented with a take-it-or-leave-it vote on the Senate bill, they would grudgingly take it.

“We ought to have a fair estate tax in this country, but instead Republicans insist that we increase the deficit … over the next few years in order to provide the lowest tax rates in 80 years on the richest few dozen families in each of our states,” said Rep. Brad Sherman (D) of California in floor debate on Thursday.

But looking ahead to GOP control of the House in the next Congress, he added that if the estate tax amendment fails, he will vote for the Senate bill. “I’m going to vote for this bill because of one question: Compared to what?” he added. “If we do not send this bill to the president this year, we will send a worse bill next year.”

Republicans not pleased, either

Republicans, too, are divided on this issue. Many conservatives wanted to see a permanent extension of the Bush tax cuts and permanent repeal of the estate tax. Rep. Mike Pence (R) of Indiana, who resigned as chair of the House Republican conference on Nov. 3, called the measure a “bad deal for taxpayers. It will do little to create jobs, and I cannot support it.”

But most are not prepared to sink the bill over the issue. Rep. Jack Kingston (R) of Georgia says he’s concerned about the impact of the deal on the federal deficit, but intends to vote for the deal. “There’s a lot of Bush tax policy in this bill,” he says. “Republicans are not having the outspoken backlash that Democrats are having, we’re having a discussion.”

Leading anti-tax activist Grover Norquist, president of Americans for Tax Reform, says that Congress had to rein in the leap in the estate tax for 2011. “To go from zero this year to 55 percent is such a whipsaw that there had to be some conversation about what to do,” he says.

“That $5 million or $10 million exemption takes in an awful lot of people,” he adds. “There isn’t a single person who wrote a $1,000 check for President Obama who isn’t concerned about the death tax."

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