Senate Dems drop estate-tax plank from middle-class tax bill

The tax proposal, which Democrats have set up as a contrast to the GOP preference to extend all current tax rates, would extend Bush-era rates only for family income up to $250,000.

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President Obama and top congressional Democrats have stressed in recent weeks that they believe the current rates should expire for family income above that threshold. The Democratic bill would also raise the top rates on capital gains and dividends to 20 percent, from the current 15.

The bill has played a key role in a fierce back-and-forth between Democrats and Republicans in recent weeks over taxes, as both sides look to curry voter favor in an election year.

Democrats have suggested in recent days that they would let all the current tax rates expire at the end of the year unless GOP lawmakers agree to letting tax hikes hit the wealthiest.

Republicans, who are planning or pushing for votes to extend all the Bush tax rates, have accused Democrats of being willing to hurt the economy for political reasons.

Sen. Charles Schumer (D-N.Y.) had said Thursday that he expected Senate Majority Leader Harry Reid (D-Nev.) to file cloture on the tax bill on Thursday. But the Senate adjourned for the week on Thursday evening, with Reid having yet to file. The bill is expected to need 60 votes to proceed, once it hits the floor.

The plan had called for returning the estate tax to parameters that were in place in 2009, which included a 45 percent top rate and an exemption for the first $3.5 million, per person, of an estate. Bloomberg first reported that the estate-tax plank would be dropped.

Senate Democratic leaders, whose party controls 53 seats in the chamber, have expressed confidence that a majority of the Senate would back their legislation.

But at least two senators who caucus with the Democrats — Joe Lieberman (I-Conn.) and Jim Webb (D-Va.) — have signaled that they won’t support it.

The farm lobby has also pushed for keeping the current estate-tax parameters, which were put in place in 2010, and Democrats from heavy agriculture states have historically favored more generous estate-tax thresholds.

Democrats like Sen. Ben Nelson (Neb.) have also said they would prefer to extend Bush-era rates for income up to $1 million.

Under current policy, the top estate tax rate is 35 percent, and the exemption is for the first $5 million of an estate, indexed to 2011 dollars. If Congress does nothing, the parameters would snap back to pre-2001 levels, with a 55 percent top rate and a $1 million top level.

That level would force more than 50,000 estates to pay a tax in 2013, according to the nonpartisan Tax Policy Center. The current levels, which are favored by Republicans, would affect 4,000 estates, and the 2009 parameters first included by Democrats would hit somewhere around 7,000 or 7,500.

The Democratic leadership aide said that taking out the estate tax provision from the current proposal could also give them added leverage later on, given the parameters that will be in place next year without lawmaker action.  

Sen. Orrin Hatch (R-Utah) said the decision showed that Democrats were pushing for the 55 percent top rate, and were even more tax-hungry than they had initially seemed.

"Let’s be clear about what happened here," Hatch, the ranking member at Senate Finance, said in a statement. 

"The ink was barely dry on the Democrats’ first tax hike bill when they realized it did not raise taxes on small businesses enough. So they went back to the drawing board and decided to hit them again with a massive increase in the death tax."