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'WRONG' IS SUCH A HARSH WORD. WE PREFER 'PREMATURE'

November 29, 2004

Two Novembers ago we made the following observation:

   ESTATE TAX DIES, TAX CUTS LIVE. Still, the 
   Republican Senate matters. Even with the 60-vote 
   hurdle, the estate tax is probably really, positively, 
   dead. It had been scheduled to rise Zombie-like after 
   a one-year interment, but now it will not resurrect as 
   scheduled on January 1, 2011. The 2001 estate tax 
   repeal had significant Democratic support, and they 
   will work with the additional Republicans elected this 
   week to cross the 60-vote hurdle. The other 2001 tax 
   cuts slated to disappear after 2010, including the 
   reduction of the top individual rate to 35%, also are 
   likely to be made permanent.

We could lamely defend ourselves on the ground that we didn't say when this would happen, but we were talking about the just-completetd congressional session. Needless to say, the 2001 tax cuts and the estate tax repeal are not yet permanent.

ARE WE THERE YET?

The recent election may make us accidentally prescient by making the Senate more Republican.

Martin Sullivan counts Senatorial heads in an article in Tax Analysts today (Unfortunately, his article is only available to Tax Notes subscribers). He concludes that the 60 votes needed for repeal can probably be found in the more-Republican Senate that will be in session the next two years. Mr. Sullivan's arithmetic goes like this:

   55 Republican Senators
  - 2 Republicans who won't vote for estate tax repeal (1)
   +7 returning Democrats who have voted for repeal (2)
   60 

   (1) Chafee (RI) and McCain (AZ)
   (2) Baucus (MT), Bayh (IN), Wyden (OR), Nelson (NE),
   Lincoln (AR), Landrieu (LA) and Nelson (FL)

Mr. Sullivan counts four Republican "long shots" who might oppose estate tax repeal - Snowe and Collins of Maine, Voinovich of Ohio, and Specter of Pennsylvania. He balances them against three additional Democrats "who easily could vote for repeal" - Feinstein of California, Murray of Washington, and Johnson of South Dakota.

Senators Feinstein and Murray voted for repeal in a 2000 vote, but against it in 2002. Senator Johnson has never voted for repeal, but he barely survived a 2002 election and he saw his South Dakota Democratic colleage Tom Daschle unseated earlier this month. Mr. Sullivan says Senator Daschle's defeat might have "large intangible effects" that will cause Democrats to support Bush Administration measures:

   In the past when he asked his Democratic colleagues 
   to vote along party lines, he (Daschle) could point to 
   himself as an example of how a Democrat can survive 
   in a Republican state. But now Daschle's loss makes a 
   case for Democrats to vote conservatively. And if it 
   comes down to one vote, the Republican leadership 
   and the Republican White House will be able to apply 
   tremendous pressure.

Given our track record, we should avoid making any more predictions. The main chance for survival of the estate tax could be the budget deficit. If Senators feel a need to preserve the bulk of estate tax revenue, a repeal of the estate tax for 90% of estate tax-payers - by, for example, a $10-15 million per-couple exclusion - could keep a remnant of the estate tax alive.

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