Parties Clash Over Wealth as House Votes to Kill Estate Tax

The measure probably won’t advance further, at least not this year.

The U.S. House voted to repeal the 99-year-old U.S. estate tax amid a partisan clash over whether the government should break up concentrated wealth or make it easier to pass along assets to the next generation.

The House passed the bill 240-179 Thursday. The tally was mostly along party lines; seven Democrats voted for passage and three Republicans voted no.

The measure would make it possible for the wealthiest Americans to do what the other 99.8 percent already can do — pass their assets to their children without a federal estate tax. The measure would save taxpayers — and cost the U.S. government — $269 billion over a decade.

“It is, at its heart, an immoral tax,” said Representative Kevin Brady, a Texas Republican.

The measure probably won’t advance further, at least not this year. A Senate test vote last month came up six votes short of the 60 needed to overcome a Democratic filibuster. President Barack Obama has threatened to veto the bill, noting that the Republican budget plan adopted by the House in March relies on revenue from the estate tax.

The tax — which Republicans have dubbed the “death tax” — evokes strong opinions on both sides of the aisle, which were evident during floor debate on the measure.

Republicans say taxing estates upon death punishes success, imposes double taxation and hurts family-owned businesses. They maintain that it’s particularly damaging to farmers who are asset-rich and cash-poor and entrepreneurs from minority groups with first-generation wealth.

Family Businesses

“It penalizes those who have worked all their lives and reinvested in their family businesses,” said Representative Adrian M. Smith, a Nebraska Republican.

A study by the congressional Joint Committee on Taxation found that 89 percent of estates with farm property in 2011 were “well-funded,” or had enough liquid assets to pay the estate tax, mortgages and liens. Among taxable estates with farm property, 77 percent were well-funded.

Democrats said Republicans were handing a tax break worth billions of dollars to just a few households and pointed to existing rules that give farms and businesses up to 15 years to pay the tax.

‘Permanent Aristocracy’

“Republicans are helping the rich get richer,” said Representative Jim McDermott of Washington. “Repealing the estate tax will surely sow the seeds of a permanent aristocracy in this country.”

After two decades of Republican success in narrowing the estate tax, Americans now have a $5.43 million per-person exemption from the 40 percent tax.

As a result, only about 5,500 U.S. estates a year pay the estate tax, though more than that are affected by the levy and create financial plans to avoid it.

Representative Ron Kind, a Wisconsin Democrat, said he couldn’t understand why Republicans want to aid the wealthiest households while also trying to cut spending on education that would increase income mobility.

“Many of our Republican colleagues seem very comfortable with the idea of income inequality in this nation, which is only growing worse,” he said. “It’s just a caste system where birth equals outcome.”

Representative Ryan Zinke, a Montana Republican, said Democrats misunderstood who was affected by the tax.

“This is not a leisure class,” he said. “This tax punishes Americans that worked hard, played by the rules and want to pass that legacy on to their children.”

Since 2005

Thursday’s vote in the full U.S. House marked the first on estate tax repeal since 2005. More than half of the House members have been elected since then and hadn’t taken a position on the issue.

Unlike previous versions, the bill passed by the House wouldn’t require heirs to pay capital gains taxes on the increased value of assets over the deceased’s life. The measure would let families pass assets across generations and avoid capital gains taxes on real gains and so-called phantom income attributed to inflation.

That would let billions of dollars in income and assets escape all U.S. taxes. Heirs would have to pay capital gains taxes only on any gain in value after they inherit the property and only when they choose to sell.

As a result, for people who don’t have to sell, the measure effectively repeals the capital gains tax.

The bill is H.R. 1105.