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How did things go so wrong with estate tax bill?

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The Ugly Art of Excessive Compromise

How did things go so wrong with estate tax bill?

At about quarter to 2 a.m. on Saturday morning, the House of Representatives passed the Estate Tax and Extension of Tax Relief Act. The bill represents the latest compromise (sell-out really) in a fight that, until a couple of months ago, was supposed to be about actually repealing the federal death tax completely and permanently. Now we’ve got a House bill that keeps the tax permanently on the books, with the estate-planning headache of a staggered phase-in, and hikes the federal mandated wage by more than 40%, too. How did things go so wrong?

The estate tax is one of the most potent political issues Republicans have—just ask Tom Daschle. When the 2001 law repealed the tax for one year, the strategy was to just extend it from there, daring Senate Democrats to vote against it and punishing them politically if they did. Majority Leader Bill Frist (R.-Tenn.) was committed to holding a vote on total repeal, and he followed through. But a funny thing happened first—the lead Senate sponsor of repeal, Sen. Jon Kyl (R.-Ariz.) began to negotiate with himself publicly. Democrats, believing that they would have an opportunity to gain political cover from a compromise, held tough and blocked a vote on repeal.

The original Kyl compromise was a single 15% rate. Then he added a second bracket, at 30%. After cloture failed in the Senate, House Ways and Means Chairman Bill Thomas (R.-Calif.) stepped in with his own compromise bill. He had a top rate of 40%. The Thomas bill passed the house with 43 Democrats voting yes, a net gain of precisely one from the House vote for total repeal. There was no indication that any Senate Democrat who had voted against total repeal would vote for that Thomas bill.

Meanwhile, so-called moderate House Republicans were agitating for a huge increase in the federal mandated wage, going so far as to block the House from adjourning if they didn’t get a vote. GOP leadership saw a great way to satisfy them and get out of town while compromising still further on the death tax. They attached a modified version of the Thomas bill, with the top rate dropping 2 points a year from 40% in 2010 to 30% in 2015 to the popular tax reconciliation trailer package, tacked on the minimum wage hike and put it on the House floor.

Embarrassingly, only 21 Republicans voted against this mess, with Rep. Mike Pence (R.-Ind.), the chairman of the conservative Republican Study Committee, leading the way. The minimum wage is perhaps the worst example of feel-good government: economists are nearly unanimous that it suppresses employment, particularly for the young and minorities, while igniting wage-push inflation. Moreover, it is an extremely inefficient way to alleviate poverty even for the working poor who don’t lose their jobs, compared more effective measures like the earned income credit. Yet Democrats, and now Republicans, too, are more interested in feeling good about themselves and boosting their talking points than in actually helping their constituents.

Now the venue shifts back to the Senate, where another difficult partisan fight to pass the bill will take place. I can only hope that enough Senate Republicans will oppose this latest deal to stop it.

When GOP leadership is being pressured by its own so-called moderates on an issue like the minimum wage, there is a deep problem with the party’s direction. The party needs to regroup and center its national agenda on the core economic issues of low taxes, low spending, and limited government. If the only way for that to happen is for the House to fall into Democratic hands this fall, then it’s probably for the best.

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Written By

Mr. Kerpen is policy director for Americans for Prosperity. His website is PhilKerpen.com.

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