A provision in President Obama’s tax proposal to reinstate the estate
tax next year is dividing some conservative groups, throwing another
wrinkle into the contentious debate.

The proposal has enraged Democrats, who believe the estate tax should be significantly higher than Obama agreed to, but a parallel debate has erupted among conservatives, who have long pushed for the estate tax — which they refer to as the “death tax” — to be abolished completely.

The estate tax for 2010 is set at zero, but, under current law, will revert to 55 percent for individuals worth more than $1 million if Congress doesn’t act before the end of the year.

The Obama plan, a compromise struck with Senate Republicans, would set the estate tax in 2011 at 35 percent with exemptions beginning at $5 million for individuals and $10 million for families.

{mosads}At the heart of the dispute is whether the Obama-GOP accord constitutes a tax cut or a tax hike.

“On the surface it looks like a tax increase,” Rep. Scott Garrett (R-N.J.) told The Hill, adding that he hadn’t reviewed the entire proposal.

Garrett’s view is backed by the conservative Club for Growth and Sen. Jim DeMint (R-S.C.), an economic hard-liner, both of whom have panned the tax-cut compromise because it calls for reinstating the estate tax. DeMint has said he would try to filibuster the measure in the Senate.

“We think that if you’re going to extend the current tax rates, then you need to extend all of them, including the death tax at zero percent,” the Club for Growth’s vice president of government affairs, Andrew Roth, said in an interview. Republicans supportive of the deal, he said, “were hoping to get 35 percent when they should have started at zero.”

House Republican leaders have taken the opposite view, with a spokesman for Speaker-designate John Boehner (Ohio) saying the estate tax provision “is not a tax increase.”

“If there’s any tax cut in this plan, it’s the estate tax,” said Rep. Tom Price (Ga.), the incoming chairman of the Republican Policy Committee. He said that he preferred no estate tax and that he would “have qualms” voting for the bill, but that “it’s a move in the right direction.”

With Democratic support, the House a year ago passed a bill that would set the estate tax at 45 percent with exemptions beginning at $3.5 million — a decrease from the previous rate of 55 percent but significantly higher than what Obama agreed to. House Speaker Nancy Pelosi (D-Calif.) has said the lower, GOP-favored rate in the president’s plan is “a bridge too far.”

A senior Republican on the tax-writing House Ways and Means Committee, Rep. Wally Herger (R-Calif.), called the Obama-backed estate tax proposal “middle ground.”

“We have to compare it to where it would be if we did nothing,” Herger said. “It’s a major move in the right direction, but it’s only half the loaf.”

Americans for Tax Reform, the group run by conservative activist Grover Norquist, is supporting the overall Obama-GOP agreement and does not consider the estate-tax provision a tax hike. 

The group’s backing is significant since the organization operates the pledge that dozens of Republican candidates sign promising to oppose federal tax increases. Ryan Ellis, the group’s tax-policy director, said the estate tax does not fall under the pledge because it is a duty on wealth rather than income. Moreover, he said, the organization judges tax proposals from a baseline of current law, under which the estate would spike to 55 percent next year and affect many more families.

“It’s not a tax increase relative to 2011 in current law,” Ellis said. He added that like most conservatives, Americans for Tax Reform supports ending the estate tax permanently.

He said conservative economic groups had been debating strategy on the issue for years, knowing that the estate tax was set to rise and that with Democrats in control of Congress and the White House, it was likely to return in some form.

“There’s been an honest disagreement for years over how we would view this very thing,” Ellis said. He said the view held by DeMint and the Club for Growth that the Obama compromise constitutes a tax increase is “a completely intellectually honest and reasonable way to look at it,” but that his group disagrees.

Of the broader tax package Republicans are signing onto, Ellis said Americans for Tax Reform is “very supportive of it.”

“It is not perfect, but it is pretty damn good, and we like it,” Ellis said.