Showdown Over Estate Tax Threatens Tax-Cut Compromise

With less than two weeks left until the Bush tax cuts are scheduled to expire, the House of Representatives will vote Thursday on a compromise package negotiated between President Obama and Senate Republicans to temporarily extend current tax rates, while also extending unemployment benefits for 13 months. But not before voting on an amendment to the package that could unravel the entire deal.

Although the Senate passed the compromise measure by a vote of 81 to 19 on Wednesday, House Democrats have remained defiant toward the White House over what they say were unnecessary giveaways from the president to Republicans in the negotiating process, including extending income tax rates for high earners and setting the estate tax at 35 percent for estates' valued over $5 million.

As a result, the House Rules Committee agreed Wednesday night that the House will take up an amendment to modify the estate-tax piece of the package before the chamber votes on final passage of the overall tax-cut compromise Thursday afternoon.

The amendment, offered by Rep. Earl Pomeroy (D-N.D.), would set the estate tax at 45 percent, with an exemption of $3.5 million, just as the House voted to do in 2009. Pomeroy estimated that the change would affect 6,600 estates in 2011 and would cut $23 billion from the cost of the roughly $900 billion package over two years.

Republicans at the rules committee hearing Wednesday argued that the $3.5 million threshold would still subject family farms and businesses to liquidation if the owner dies and his or her children cannot pay the taxes on the estate.

If the House approves the amendment Thursday, it could threaten the future of the entire package, since the amended bill will have to go back to the Senate for approval, where Republican senators have already said they are not interested in renegotiating the deal they struck with the president.

"Now it's up to our colleagues in the House, and we urge Democrat leaders to resist playing political games and making partisan changes so that American taxpayers won't be hit with a huge, job-killing tax hike on January 1," Senate Minority Leader Mitch McConnell warned after the Senate approved the bill Wednesday.

But angering Republican senators is a risk Pomeroy said he's willing to take.

"Would they have taxes go up on everyone just because they want to take care of that wealthy, that little estate-tax exclusion exposure for the wealthiest 6,600 families in this country?" Pomeroy said Wednesday in an interview with PBS's "NewsHour." "We think that we improve the package by making the amendment in order and approved."

Speaking from the White House Wednesday, the president urged lawmakers not to delay the bill any further.

"I know there are different aspects of this plan to which members of Congress on both sides of the aisle object," he said. "That's the nature of compromise. But we worked hard to negotiate an agreement that's a win for middle-class families and a win for our economy, and we can't afford to let it fall victim to either delay or defeat."