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Erosion of Estate Tax Is a Lesson in Politics

House Democrats, led by Rep. Earl Pomeroy (D-N.D.), today will propose permanently raising the exclusion to $3.5 million -- $7 million for couples. That would be enough to exempt 99.7 percent of all estates. The Pomeroy bill would cost the Treasury $72 billion over 10 years, compared with the $290 billion price tag of a full repeal through 2015, according to the Joint Committee on Taxation.

"The ideological fervor that is admittedly still pretty strong in some quarters is now being tempered by the runaway debt that is weighing down this country," said Pomeroy, who thinks voters are ready for a compromise.

House Speaker J. Dennis Hastert (R-Ill.) lobbies against the "death tax" on Capitol Hill in 2000. Republicans poll-tested the term and found it to be a useful tool. (Michael Smith -- Getty Images)

Who's Paying What Just a small percentage of Americans pay estate taxes, and the number may continue to shrink.

Indeed, Senate Majority Leader Bill Frist (R-Tenn.) has asked Sen. Jon Kyl (R-Ariz.), a repeal proponent, to find a compromise that could win a filibuster-proof 60 votes in the Senate this year, even if it falls short of full repeal.

A compromise that includes any estate tax, no matter how small, may fail if the fervent repeal coalition holds firm, Graetz said. Repeal opponents have been unable to whip up big support, he said, because they never made the emotional case that the American belief in equal opportunity runs counter to the existence of an aristocracy born to inherited riches. Paris Hilton, who inherited her wealth and now famously enjoys spending it, could have been their counter to the small-business owners and family farmers whom repeal proponents held up as the victims of the tax.

"The public doesn't believe people should be taxed at the time of death, whether they are paupers or billionaires," said Frank Luntz, a Republican pollster who has been working on estate tax repeal for a decade. "Compromise is very difficult because the public doesn't want it to exist."

It is that sentiment that the fledgling repeal forces tapped into when they mobilized more than a decade ago. A little-known Southern California estate planner named Patricia Soldano launched her repeal effort with the backing of about 50 wealthy clients, with the Gallo and Mars families leading the way. Other contributors included the heirs of the Campbell soup and Krystal hamburger fortunes. Frank Blethen, whose family controls the Seattle Times Co., was also pivotal.

The effort caught fire when small-business groups such as the National Federation of Independent Business and agriculture groups led by the National Cattlemen's Beef Association joined in.

By 1994, Newt Gingrich's Republican insurgents had latched onto the estate tax issue, but the Contract With America called for an estate tax reduction, not repeal. In 1995, Luntz poll-tested the term "death tax" and advised the new GOP majority to never use the terms "inheritance" or "estate tax" again.

By then, Soldano's Policy and Taxation Group was spending more than $250,000 a year on lobbying. A parade of small-business owners and family farmers appealed to their congressmen, worried that they could not pass on their enterprises to their children, even though most of them would not be affected by the tax.

"There's been a sustained, determined campaign of misinformation that in the end has left the American people with a very different notion of what the estate tax is and does than actually exists," Pomeroy said.

But ultimately, whether people believe the estate tax will affect them has little bearing on support for repeal. Early this year, with Soldano's money, Luntz again began polling, this time in the face of record budget deficits and lingering economic unease. More than 80 percent called the taxation of inheritances "extreme." About 64 percent said they favored "death tax" repeal. Support fell to a still-strong 56 percent when asked whether they favored repeal, even if it temporarily boosted the budget deficit.

Democrats "still don't get it," Graetz said. "The politics are still very powerful."

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