House Sacrifices Revenue and Earmarks

GOP Whacks Estate Taxes, Gives President Line-Item Veto Over Spending

The House yesterday approved a deep, permanent tax cut on large, inherited estates that would cost the Treasury hundreds of billions of dollars, then sought to burnish its reputation for fiscal discipline by granting the president power to rescind pet projects from spending legislation.

The twin actions, cutting taxes and approving a line-item veto, came as Congress struggles to contain stubborn budget deficits. The votes also came just days after Rep. Jeff Flake (R-Ariz.) tried and failed 31 times to strike pet projects worth more than $200 million from four spending bills that passed the House easily.

House Majority Leader John A. Boehner (R-Ohio) strongly defended both pieces of legislation but offered no reason for considering them in sequence.

"Sometimes things just happen on the same day," he said, shrugging.

But Democrats mocked the Republicans' legislative choreography and portrayed the line-item veto measure as political cover for excessively costly tax legislation that would largely benefit the wealthiest Americans.

"You control the House. You control the Senate. You control the presidency, and you need help before you spend again?" asked Rep. George Miller (D-Calif.). "What is this, Comedy Central?"

The estate tax bill -- which would cut but not eliminate taxes on inheritances -- marked a significant turnaround for House Republicans, who have made full estate tax repeal an economic tenet for more than a decade. But after the Senate failed to muster the votes to permanently repeal the estate tax this month, the GOP decided it was time to settle for less, although under the bill, as few as 2,800 estates a year would remain subject to taxation.

The legislation, which passed 269 to 156, would exempt estates worth as much as $5 million -- $10 million for couples -- from taxation indefinitely. The tax rate on estates worth more than the exemption level up to $25 million would be set at the same tax rates that apply to capital gains -- now 15 percent but scheduled to rise to 20 percent in 2011. The tax for estates worth more than $25 million would be twice the capital gains rate. The bipartisan Joint Committee on Taxation estimated that the estate tax cut would cost the government $279 billion in revenue over the next 10 years.

But between 2012 and 2021, the first decade the tax would be fully in force, the cost to the Treasury would climb to $602 billion -- $762 billion if the costs of additional interest payments are included. And if the 15 percent tax rate on capital gains is extended beyond its 2010 expiration date, the 10-year cost could be as much as $823 billion, according to the joint committee.

Forty-three Democrats joined 226 Republicans voting for the bill. The measure was opposed by Republican Reps. John T. Doolittle (Calif.) and Todd Tiahrt (Kan.), who favored a full estate tax repeal, 153 Democrats and independent Bernard Sanders (Vt.).

Hours after passage of the estate tax cut, the House approved legislation requested by President Bush to grant the White House authority to strike "earmarks," home-district pet projects funded through narrowly tailored legislative language, from annual spending bills. The vote was 247 to 172.

Under the bill, the president would be able to submit to Congress a list of project cancellations for an up-or-down vote within 45 days of a bill-signing. Narrowly targeted tax breaks would also be subject to rescission.

With the House's reluctance to cut pet projects on public display in recent weeks, the debate included significant amounts of derision. Flake's motions to strike earmarks had never gained more than 92 votes. In that light, Flake said, the line-item veto bill did not look so good.

"It's 'please, control us. We can't control ourselves,' " he said. "That's not a good message to send."

Both measures face some difficulties. Senate Budget Committee Chairman Judd Gregg (R-N.H.) has vowed to block consideration of the line-item veto legislation unless it is included in a much broader, more significant package of budget controls that cleared his committee this week.

The estate tax bill is within a few votes of the 60 needed to beat a Democratic filibuster in the Senate. But some moderate Republicans say the House bill is too large a drain on the Treasury, while others say the bill would leave too high a tax rate -- as much as 40 percent -- on the largest estates.