By Jay Heflin - 02/13/10 06:34 PM EST
Senate Majority Leader Harry Reid's (D-Nev.) decision to move a scaled-back job bills has thrown a bipartisan deal to reduce the impact of the estate tax into doubt.
Senate leaders discussed moving an estate tax bill through their chamber that would prevent a huge hike in the tax from taking effect in 2011.
But Reid on Thursday said he was scrapping the $85 billion Baucus-Grassley proposal and moving a more targeted jobs bill that would costs an estimated $15 billion.
That decision could lead Republicans to abandon support for the jobs bill at a time when President Barack Obama and Congress are under pressure to show voters they can work on a bipartisan basis.
Staffers with Senate Minority Leader Mitch McConnell (R-Ky.) did not comment on whether bipartisanship was dead on moving an estate tax bill. But a Grassley aide said Reid’s bill “sends a message that he wants to go partisan.”
“Senator Reid did this just as Republican senators were saying they liked things in the Baucus-Grassley draft, which would have prevented billions of dollars in tax increases and offset any spending,” said Jill Kozney, a Grassley spokeswoman. “The Majority Leader pulled the rug out from work to build broad-based support for tax relief and other efforts to help the private sector recover from the economic crisis.”
Baucus and Grassley highlighted the importance for a bipartisan deal on the estate tax when introducing a draft of their jobs bill hours before Reid announced his decision.
“[T]here are two process agreements that are essential to completing action on [the jobs bill],” they wrote in a joint statement. “First we will work to ensure that the scope of the Finance Committee package retains its bipartisan character. Second we are committed to timely consideration of permanent bipartisan estate and gift tax reform.”
Senate leadership aides said there is no agreement on the estate tax and it will not be a part of the discussion once debate on the jobs package begins in late February.
“If the Senate votes for cloture on Senator Reid’s amendment on Monday the 22nd, then no estate tax amendment can be offered,” a Reid aide told The Hill.
However, House leadership aides expect the Senate to move an estate tax bill “soon” that is independent of the jobs legislation. Senate aides discounted this prediction, saying there is no plan to move an estate tax bill.
The House has already passed legislation that permanently maintains the estate tax at 2009 levels, a $3.5 million exemption ($7 million for couples) and a top tax rate of 45 percent. The bill passed by a narrow margin, 225-200, and is expected to cost $233 billion over ten years, according to the Joint Committee on Taxation.
A Senate aide said the House-passed bill is the starting point for negotiations in the upper chamber, but offered no details on where talks were headed. Baucus has signaled support for the legislation with the caveat that it be indexed for inflation.
The issue over what to do about the estate tax has divided Senate Democrats. Centrists want to prevent the coming tax hike while more liberal-leaning members argue the increase would help reduce historically high deficits.
The estate tax is currently repealed, but barring congressional action it returns next year to pre-2001 levels by socking estates worth more than $1 million with a tax that tops out at 55 percent. This does not include the 5 percent surtax on wealth transfers ranging between $10 million and $17.18 million.
The non-partisan Congressional Budget Office expects the estate tax to raise roughly $30 billion in its first year after reinstatement and receipts will increase in subsequent years.
The tax increase presents a political dilemma for Senate Democrats in close races for November’s election since their Republican contenders can argue the hike will hit entrepreneurs and family farmers struggling to survive the economic downturn.
Reid is a prime target for the GOP, currently facing a 20 percent chance for re-election, according to political strategist Nate Silver. Sen. Blanche Lincoln (D-Ark.) faces similar odds and has advocated for lowering the estate tax to 35 percent on estates worth more than $10 million per couple. However, any cost difference between the senator’s proposal and the House-passed bill must be offset, according to budget rules. That makes her proposal a hard sell to fellow members since most revenue offsets are politically unpopular, especially in an election year.