To: Financial Writers
From: Jude Wanniski
Re: Big News May be Happening!!
I’m not sure why the financial press has been so quiet on the increasingly high probability that the Senate next week will follow the lead of the House of Representatives and vote to phase out the “death tax.” Is it because President Clinton has threatened to veto the legislation if it ever gets to his desk? So why bother writing about something that ain’t gonna happen? Or is it because The New York Times and The Wall Street Journal Washington bureaus have dozed off, and if they are not going to take an issue of this magnitude seriously, why should the rest of you?
Let me remind you that when the House voted June 9 to repeal the gift and estate tax in stages by the year 2010, it did so with Republicans unanimous, joined by 65 Democrats!! This is clearly enough to override a threatened veto by President Clinton, but the NYT report the next day suggested that those who didn’t show up to vote might do so to sustain a veto.
The Times, by the way, was the only paper I saw that noted the legislation would also increase the effective capital gains tax on inherited assets in the year 2010. It would do so by ending the current practice of “stepping up” the cost basis on which the heirs to an estate pay capital gains tax on inherited assets. They would no longer have to worry about the death tax, but would have to pay the 20% capital gains tax on the original purchase price of an asset when it is sold, not on its market value upon the death of the decedent. It was amazing to pick up the Monday edition of the WSJournal after the Friday vote June 9 and find no mention of this prospective change in the law. The Times mentioned it in its Saturday account, but with no indication that House Ways&Means Chairman Bill Archer put it in the package to attract Democrats -- which it did in a big way.
Okay, so a few key reporters in the national press were asleep at the switch. But then, late last Friday, Senate Majority Leader Trent Lott announced that he would call up the House bill on Monday, June 26, and immediately filed a cloture petition and ask for an up-or-down vote on June 28, with no amendments!! This would mean he would have to get 60 votes of the 100 Senators for this break in regular procedure or have the bill filibustered with crippling amendments -- thereby preventing it from ever getting to the President’s desk. If Lott can do this, there would not be any difference between the House and the Senate on repeal of the death tax and the bill would go IMMEDIATELY to President Clinton.
Now this would be BIG news wouldn’t it? If the President vetoed a bill supported by ALL Republicans and a third of the Democrats, wouldn’t his veto be easily overridden? And if he somehow badgered Democrats into supporting him on the veto, wouldn’t this mean the “death tax” would become a major issue in the presidential campaign? And if Hillary Clinton supported her husband’s veto, wouldn’t it become a cutting-edge issue in her race for the U.S. Senate? So how come nobody reported any of this? Are you not amazed that you are just learning all this by reading my memo? Why are there thousands of journalists in the print and electronic media supposedly covering news that affects practically every American and they choose to ignore the development of this story?
Maybe you all assume Trent Lott won’t get the 60 votes he needs? But wouldn’t you at least go to the trouble of seeing how many Senate Democrats have signed up for repeal? When Karen Kerrigan of Polyconomics’ Washington office checked, she found that eight Democratic Senators had signed up and four more were indicating they would probably do so. Holy Smokes!! Fourteen Democrats? With 55 Republicans that would make 69 votes to override a veto. What happens when the other Democratic Senators realize they would be voting against repeal of the incredibly unpopular death tax and would have no excuse as to why they did so? When repeal is packaged with less popular items, they can always say they were forced to vote against the package. This time they can’t, because Lott is maneuvering a straight up-and-down vote. Isn’t that news, folks?
Well, when all is said and done, and the President announces he will sign the bill because it ends step-up in cost basis, you can report no big deal here. One of my conservative tax-reform friends tells me that financial and political reporters as a group would love to see the death tax repealed, but not if it means they will have to report a huge victory for Republicans and a huge defeat for Democrats. So the best thing is if Republicans do this quietly and not rub anyone’s nose in the victory when it happens. Do you think this might be so? What a funny world. By the way, if you want to find out who pays the estate tax and why it is so unpopular in both Republican and Democratic audiences, here is a report in the Dallas News by Gary and Aldona Robbins, my two favorite supply-side tax specialists. If you decide to write something about this, you can use some of their material.