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

An $858 billion package to cut taxes and help the long-term unemployed was unexpectedly pulled from the House Thursday, suggesting that Democratic leaders underestimated the depth of opposition to the bill as well as the possibility that House members could amend it.

The development means Democratic leadership will have to work behind the scenes to shore up support for the package before bringing it back to the floor – a process that could take anywhere for a few hours to a few days, if possible.

Speaker Nancy Pelosi is faced with a delicate balancing act: President Obama has asked her to rally the House to pass the tax deal that satisfies neither party, and to pass it without changes. The Senate has already passed the deal he struck with Republican leaders, and Senate minority leader Mitch McConnell has said Senate Republicans will not accept any House amendments to the bill.

Seeking to navigate that difficult path, the House Rules Committee laid out strict rules for House debate on the tax deal Thursday: Only one amendment would be considered – to the estate tax portion of the deal.

But objections to these rules for debate from within Democratic ranks proved stronger than majority leaders had expected. One conservative Democrat, Rep. Gene Taylor (D) of Mississippi, went so far as to try to force the House to adjourn for 15 minutes – a move that is often used only when frustration reaches a breaking point.

Moreover, it appeared as if the amendment – which would have made the Senate bill's estate-tax exemptions stricter – might have passed. The amendment was seen as a way to let lawmakers vent anger about the bill without actually passing.

“That’s how you prevent a deal from being undone in Congress,” says Julian Zelizer, a congressional historian at Princeton University in New Jersey.

“Speaker Pelosi is obviously deeply disappointed with this bill, which gives up on one of the Democrats’ major promises in 2008 to oppose tax breaks for the wealthy, but there’s almost no wiggle room in this deal between Republicans and the president,” he adds. “By limiting amendments, the Speaker is bowing to the president.”

Democrats in revolt

By revolting against the terms for debate, however, House members were not bowing to her.

“It has been some time that so many have been asked to do so much for so few – and for no legitimate reason, I might add,” said Rep. Stephen Lynch (D) of Massachusetts, a liberal. “What this bill represents is a complete surrender of Democratic principles in standing up for working people and making them carry an undue burden under this new tax law."

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.

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."