msnbc.com news services
updated 4/13/2005 7:20:16 PM ET 2005-04-13T23:20:16

House lawmakers voted Wednesday to permanently eliminate the federal estate tax as part of a Republican push to extend President Bush’s tax cuts beyond the end of the decade.

The House voted 272-162 to repeal the tax, with 42 Democrats joining the Republican majority in support of the bill. Democrats said repeal will cost the federal treasury $290 billion in the first four years and more than $700 billion over a decade.

The bill goes to the Senate where its fate is unclear in the face of mounting worries over the nation’s rising debt and concern it could curb charitable donations.

The Senate has failed to ratify House efforts to eliminate the estate tax several times in the past. Supporters hope a bigger Republican majority there could mean the difference this year, but Sen. Jon Kyl, R-Ariz., refused to predict the likelihood of success.

“We are working to see what the best approach is,” he said.

Permanent repeal of the estate tax is a high priority for many business groups, and Republican backers called it a tax on death that thwarts savings and investment. They argue permanent repeal now will help family businesses plan for the future.

“As a matter of basic fairness we must permanently repeal the death tax,” said Rep. Kenny Hulshof, a Missouri Republican. "The death of a family member quite simply should not be a taxable event.”

In a statement released after the House vote, President Bush agreed. “The death tax results in the double taxation of many family assets while hurting the source of most new jobs in this country — America’s small business and farms," he said.

The 2001 tax cut package phased out the estate tax with total repeal in 2010. But after 2010, the estate tax along with income tax rates are scheduled to revert to levels in effect before the tax cut.

Bush vowed during his re-election campaign last year to extend those tax cuts, and Wednesday’s vote in the House was the first effort to make good on that promise.

Rep. Christopher Cox, R-Calif., said those pushing to retain a tax “still want to pry lots of cash out of the cold, dead fingers of America’s deceased entrepreneurs.”

But even when the estate tax was at its peak, few estates were big enough to be affected by it. Before the 2001 tax cuts went into effect, more than 97 percent of estates were exempt, mostly because they were so small. The Internal Revenue Service said just over 2 percent of people who died in 2001 left estates subject to taxation, bringing in $23 billion in tax revenue.

House Democratic Leader Nancy Pelosi, D-Calif., said the repeal favored the “super rich” and would make federal deficits worse.

“Do we want to continue reckless Republican tax policies or to return to a fair system of taxation?” she said.

Democrats lost in their bid to pass an alternative that would have raised the size of estates that are exempt from tax but leave the tax in place for the wealthiest estates.

Rep. James McGovern, D-Mass., said of the Republicans, “They believe the wealthy should be exempt from paying taxes and the poor should fend for themselves.”

The current law gradually increases the size of an estate exempt from tax and decrease the top tax rate before complete repeal in 2010.

This year, estates worth up to $1.5 million for an individual or $3 million for a couple owe no tax. The top tax rate stands at 47 percent. Just before its complete repeal, in 2009, the exemption rises to $3.5 million for an individual or $7 million for a couple. The tax rate falls to 45 percent.

The Associated Press and Reuters contributed to this report.

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