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Should Congress Repeal Estate Taxes and the Marriage Penalty?

Aired July 17, 2000 - 7:30 p.m. ET


ROBERT NOVAK, CO-HOST: Tonight, love, death and taxes. Lots of fighting in Washington over repealing the estate tax and marriage tax penalty. Are these good tax cuts, or are they simply good election- year issues?

ANNOUNCER: Live from Washington, CROSSFIRE. On the left, Bill Press; on the right, Robert Novak. In the crossfire, National Economic Adviser Gene Sperling, and Assistant Senate Majority Leader Don Nickles, a Republican from Oklahoma.

NOVAK: Good evening. Welcome to CROSSFIRE.

They're dancing the election-year tax-cut minuet on Capitol Hill. The Republican Congress passes a tax cut, the Democratic president vetoes it. Tom what avail? It's presidential politics, stupid!

Last week, the Senate voted to repeal gradually the 84-year-old law that heavily taxes estates, and therefore, limits what can be left to heirs there. There will be a certain veto. And as we sit here, the Senate is readying itself to pass a bill to reduce taxes on working married couples. It, too, faces a sure veto unless the Republicans buy a deal offered by the president. Marriage tax cut in return for the Democrats prescription drug bill.


SEN. TRENT LOTT (R-MS), MAJORITY LEADER: We're going to try to do the right thing, and that is to get rid of the marriage penalty tax and provide prescription drugs to the elderly poor that really need it. I hope he'll join us.

He has shown no evidence in recent months of being engaged at all on what's going on, on Capitol Hill other than to lob a bomb up every chance he gets.



JOE LOCKHART, WHITE HOUSE PRESS SECRETARY: This is a question that's very much in the Republican leadership's hands. They can make political points, pass bills so they talk about them at their convention, or we can get marriage penalty relief and prescription drugs for seniors, as the president has offered. It's up to them: politics or substance.


NOVAK: With a close presidential election in prospect, there is not much chance for any deal.

So do the Democrats convince Americans that these are tax cuts for the rich? Or do the Republicans convince Americans that taxpayers need relief from unfair laws?

We preview that debate tonight -- Bill.

BILL PRESS, CO-HOST: Senator Nickles, good evening.


PRESS: Most Americans don't experience the estate tax, so maybe they don't understand it. I'd just like to start by sort of outlining current law. Under current law, if you're an individual and you leave an estate, there are no taxes on it up to $675,000. That's soon to get up to a million bucks.

If you're a couple, you can leave up to 1.35 million for your children without -- paying -- and they wouldn't have to pay any taxes on it. And small businesses today, up to $2.6 million tax-free, which means, senator, that 98 percent of estates in this country have no tax on them at all.

Why are you in such a hurry to pass a special tax relief for the 2 percent of the wealthiest Americans?

NICKLES: Bill, because the tax is wrong. It's wrong to have a tax on death. So we want to eliminate the tax on death and say there will be a tax when and if the property is sold. But if somebody receives a business -- say they work their entire life and they want to pass that business on to their children -- the government shouldn't come in and say, oh, that's above $675,000, we want a third of it.

The taxable rate -- as soon as you have a taxable estate, as soon as you pass the exemption amount, the taxable rate is 37 percent. You have a million dollars it's taxable at 39 percent; 3 million is 55 percent.

Why in the world is the federal government entitled to take over half of what somebody has worked their entire life on because they happen to have a taxable -- maybe a farm or ranch or business or something -- the government comes in and says, hey, we want 55 percent. In some cases the estate taxes, the death tax is 60 percent. That's wrong. It's unfair. Whether it applies or whether it applies to whoever, the tax is wrong. It needs to be repealed and replaced basically with the capital gains tax.

PRESS: Well, senator, there's no tax on death. There's only a tax on death plus a huge estate.

Now the Democrats have said that they -- they've offered to increase that small business exemption up to $4 million, senator, which means only one out of 100 estates will pay any tax. And by the way, the person who earns it doesn't pay it. It's the kids, most of whom didn't do anything to earn it, who end up paying the tax. So what's wrong with that deal? Up to 4 million -- you can take care of all the small businesses you want. What's wrong with that deal?

NICKLES: Well, no, actually you don't. Let me tell you, on the small business exemption, we looked at it. Very few businesses qualify. You have to stay in the business for 10 years. If you get out, you have a lien against the business against it.

There's all kinds restrictions. Many, many -- most businesses, frankly, don't qualify for it, whether it be a business or a farm.

And so what? Let's say you have a $5 million estate. Why should the government come in and say we want a third?

It's just ridiculous for the government to say they want to have a policy that taxes death. We want to say -- and what we're trying to do is replace that tax basically with capital gains. And so there wouldn't be any tax on death. The taxable event would not be death. The taxable event would be when the property is sold.

So if somebody inherits the property and if they want to keep the business going, there's no tax. If they sell the business, then there would be a tax, but that tax would be at 20 percent, not at 55, not at 60 percent.

NOVAK: Gene Sperling, I've been trying to understand, talk to you about Clinton tax policy about eight years now, isn't it?


NOVAK: I think we started talking about it in Little Rock. And I think I get the idea what you're -- what you're up to. What you really want to do is redistribute the income from the people who earned it to the people who didn't earn it, which was Karl Marx's dream. Is that about right?

SPERLING: Bob, you know, what's happened during those eight years, Bob? We've had the longest expansion in our history, the stock market's gone through the roof. There's more wealth, there's more millionaires. That's all terrific.

But what has gotten us or helped get us there is that we've had a commitment to fiscal discipline, to paying down our debt, to dealing with Social Security and Medicare. And in that context of fiscal discipline, we have supported tax cuts, but they have been targeted tax cuts for families, for education, and for health. That's what we're still -- that's what we are still calling for. That's what we're still proposing.

What this is here...

NOVAK: You didn't deny my -- my -- my proposition. SPERLING: Of course I deny that.

NOVAK: You do deny it? You deny that? That you're trying to redistribute the income. I mean, everything you have done and proposed is to try to have more taxation on the top income earners. Isn't it true that early in this administration...

SPERLING: It is absolutely the case, Bob...

NOVAK: Just a minute. Just one more question.

Isn't it true early in this administration you tried to increase and broaden the estate tax? Isn't that true?

SPERLING: Bob, it is absolutely the case that when Bill Clinton inherited the worst deficit this country ever had, instead of dealing with it by slicing Medicaid, the earned income tax credit, and food stamps, he did raise taxes on the top 1.2 percent. He dedicated to deficit reduction. We now have the country paying down debt, on its way to being debt free. We have interest rates 2, 3 percent lower than they would be.

NOVAK: Didn't -- didn't he try to increase the estate tax and broaden it? Didn't he? Didn't he?


NOVAK: Isn't that what you proposed?

SPERLING: Bob, in 1997 what we did was we -- we helped the estate tax. We actually increased the -- Bill was talking about -- it happened in 1997.

NOVAK: Oh, you testified against that. You testified against that!

SPERLING: Bob, the president agreed to and signed...


SPERLING: Bob, let's talk about what's going on.


Bob, let's talk about what's going on right now. The Republicans are running away from the fiscal discipline that has helped this country. And what are they running away from it for? They're running away from it for --- to help the privileged few.

This tax cut -- let me tell you something Senator Nickles didn't mention.

NOVAK: Wait a minute. Wait a minute. Wait a minute. This is not...

SPERLING: He didn't mention that this was... NOVAK: This not a speech, Gene.

SPERLING: ... a $750 billion tax cut in the second 10 years, and that half of that goes to the top 1/10 of 1 percent.

NOVAK: See, one thing -- one thing that you're not saying is that in this good economy, which I don't think your administration had anything to do with, but in this -- in this very good economy, our children, Bill's children and my children are going to be making lots and lots of money. And so down that -- in that stream, more and more people are going to be faced with this noxious tax.

And so what -- see, the American people are not as dumb as you people think they are. And I want to show you what the Gallup poll shows about repealing the estate tax: 60 percent, 60 percent favor appealing the estate tax; 35 oppose it.

See, the American people aren't as dumb as you think, right?

SPERLING: Bob, I think if the American people knew that $750 billion in the second 10 years was going to go to just a few thousand people, 750 billion that's not going to Medicare, that's not going to Social Security, that's not going to pay off our debt, that's not going to education, they'd feel differently. If you have a little show and tell, let me show you mine.

This is what's happened under this eight years you've talked about. It says federal tax level falls for most.

For most...

NOVAK: What...

SPERLING: For all but the wealthiest Americans...

NOVAK: Why hasn't it fallen for me?


SPERLING: Because you're -- exactly. Because it says the federal income tax has shrunk to the lowest levels in four decades, according to liberal, conservative groups like...

NOVAK: But it's more -- it's more progressive than it used to be.

SPERLING: The lowest in four decades.

SPERLING: Why? Because we've cut: $500 child tax credit, the earned income tax credit.

NOVAK: Because you're making -- because you're making the good earners pay more and more in taxes.

PRESS: Senator -- senator, I know you want to jump in here. Go ahead. NICKLES: Yes, I do want to jump in.

PRESS: Go ahead.

NICKLES: And Gene should be ashamed and certainly President Clinton should be ashamed to be talking about, oh, that's $750 billion. What they're doing is saying, well, that's the estimated cost from 11 to 20 years. That is so preposterous it's ridiculous. That's ignoring the fact that we made a change in the step-up basis, which means that more property is going to be subjected to capital gains. They sort of forgot to figure that in.

And to be taking projections and trying to guess what it will be 20 years from now is just -- just ridiculous.

Now just to give you an example, in '95, this administration, after they passed their very large tax increase, still projected deficits $200 billion forever, and so projections can be way off. For them to say it's 750 billion is just ridiculous.

PRESS: All right. Let's get back here to tonight's topic, if we can. I want to come back to the basis of this, the whole premise behind this tax.

You know, Pete Stark, Congressman Pete Stark from California is a good friend of mine, Senator, probably a friend of yours. I think he's the wealthiest member of the California delegation, banker from Contra Costa County, he has a seven-figure business he is going to leave to his kids.

On the floor of the House, he addressed his five children and his 10 grandchildren, and he said this -- quote -- "You are going to get a down payment from your mother and me of $1.35 million tax free. You have not worked a day in your life for that."

My question is why should somebody, average American, Joe Lunch Bucket out there, has to pay taxes on every dollar he earns and these kids, according to your plan, will pay no taxes on something that they never worked anything for?

NICKLES: Well, one, it's wrong.

PRESS: Basic fairness, it's unfair.

NICKLES: No, they pay taxes whenever their property is sold. You take a business, Bill -- you may not realize this, but the business is not worth so much unless you sell it.

You know, here's the government coming in right now, present-day policy, and says, here is a -- let's say a business worth $10 million, the taxable estate marginal rate is 60 percent. And so how do they pay 60 percent? They may want to continue running that business, but with government saying they want 60 percent of every additional dollar they have to sell it. Why should the government make somebody sell a business that they want to continue running? It's wrong. PRESS: They don't have to sell. As Pete Stark points out, that they can pay that over 10 years or more with a less than prime-rate interest rate, and if they -- with that down payment, if they can't make it happen, as Pete Stark said, they deserve to lose a business. They don't have to sell the business. That is just a red herring, Senator, and you know it.

NICKLES: No, it's not a red herring. You take a business -- let's just say a business is worth $10 million and now present law, the government comes in says, "We want 55 percent of that. We want 60 percent of it." Maybe they want to continue operating the business.

The business -- very few businesses have $10 million in cash, the only way they can do that is to sell it. And then when they sell it, what should the rate be? Should the government be entitled to take over half of the value of that business that somebody has worked their entire life for? I don't think so. Under our proposal they would pay a capital-gains tax, that rate is 20 percent, that is a lot more fair than 55 percent.

PRESS: OK, you made that point. Real quick, Gene, and then we break.

SPERLING: Two points, Senator: No. 1, you know that the Democratic alternative would have exempted $8 million for that small business.

NICKLES: It wouldn't work.

SPERLING: So that $10 million you are talking about, they would be paying a very small tax.

Secondly, where are your priorities, Senator? Why -- how come you are not talking about a college opportunity tax credit? How come you are not talking about a long-term care tax credit like we're supporting for families dealing with it.

PRESS: All right...

SPERLING: Why are you worrying about the unfairness for families worth $50 million instead of families making $50,000?

NICKLES: The exemption that the Democrats were pushing, frankly, wouldn't work. The definition of small business, small farms, frankly, NFIB, everybody has looked to that and said, hey, wait a minute, we don't qualify.

PRESS: OK, all right, on that point, gentlemen, we're going to take a break.

When we come back, first comes the death tax, then marriage. Is the marriage tax going to fall next, or the "love tax," as they call it?


PRESS: Welcome back to CROSSFIRE.

Before the death tax comes, the love tax, a quirk in current law which means that some married couples pay higher taxes than if they filed as two singles. Even President Clinton says he is ready to remedy that inequity, but only in return for prescription drug coverage, a deal which Republicans so far reject.

So, is the marriage tax unfair? Will there be a deal to fix it, or just another political standoff?

Our debate tonight continues with Republican Senator Don Nickles from Oklahoma, assistant majority leader joins us from Capitol Hill, and Gene Sperling, national economic adviser to President Clinton -- Bob.

NOVAK: Gene, I have to stipulate that if I were making -- cutting taxes, I wouldn't do it this way with the marriage penalty. I would have a straight across-the-board tax cut, but as Father Flanagan said, there is no such thing as a bad boy -- I say there is no such thing as a bad tax cut.

And I want to tell you what Senator Larry Craig says about the idea of why the president is against relieving the tax burden for Americans.

Let's take a look at it.


SEN. LARRY CRAIG (R), IDAHO: Quit playing the political games you are playing right now. Give the highest taxed generation in history just a little break, Mr. President. When this bill gets to your desk, sign it.


NOVAK: For goodness sakes, Gene. There's $4 trillion in surplus, $2 trillion in the general fund over the next decade. Do you want to spend it all on your pet programs? Can't you give some of it back to the people who pay the taxes for it and are overtaxed?

SPERLING: First of all, we do have for the average family the lowest tax rates in 30 or 40 years. Secondly, what we want to do with the surpluses mostly, is pay off the debt so that America is debt free and that we're saving enough for Medicare and Social Security. That is our overall starting point.

NOVAK: Why won't you give the money back to the people who pay the taxes?

SPERLING: Because it's also our debt that we've accumulated, it's our Medicare and it's our Social Security. And Americans believe you ought to pay your debts first and take care of first things first. But what we have said, Bob, is let's -- we should in that context do tax cuts. The tax cuts we prefer are for long-term care, $3,000 for families who are caring for an elder... NOVAK: In other words, if you dance...

SPERLING: ... twenty-eight-hundred dollars for college opportunity tax credit, but we wanted a marriage penalty tax credit.

NOVAK: If I dance to Bill Clinton's tune I get a tax cut; if I want to take the money and buy a new Corvette with it, you don't give me a tax cut, is that right?

SPERLING: We do have a priority for families that are sending their kids to college.

NOVAK: Well, I want a Corvette, I don't have -- my kids are educated.

SPERLING: We do...

NOVAK: Why shouldn't I have the freedom to spend my tax money anyway I want?

SPERLING: Because, Bob, we also want you to have low interest rates when you are buying a house and borrowing, and that is why we focus on debt reduction.

NOVAK: OK, let me just...

SPERLING: But we're...

NOVAK: I just want to show you one thing, you're talking about the American people, Gene, the last available poll on the marriage penalty tax, 13 percent of Americans think it's fair, 84 percent think it's unfair.

What do you think of that?

SPERLING: Bob, what I think is that the president does have a proposal for targeting the marriage penalty. Now, you know, as I think you have indicated, that a lot of this tax cut does not go to people of the marriage penalty, 40, 50 percent of it. We would prefer to use that for college-opportunity tax credit. We prefer to do that for a long-term care tax credit. That is our preference, to use that for working for families.

NICKLES: If I might...

SPERLING: But what we said was that we would go along with what Senator Nickles wanted on that in the spirit of bipartisan compromise if he was willing and the Republicans were willing to go along with a real Medicare prescription drug coverage...

PRESS: All right, let's get a response to that.

NICKLES: All right, let me...

SPERLING: ... to deal with the half the families that...

PRESS: What about that deal, Senator Nickles, what's wrong with it?

NICKLES: Well, one, they shouldn't be coupled together. I mean, frankly, we have enormous surpluses. And we should eliminate a couple of taxes that are grossly unfair. One is the death tax. One is the tax on marriage. People shouldn't be penalized because they happen to be married. It costs the average marriage couple about $1400. We want to eliminate that. President Clinton -- I heard Gene say: Oh, he has all these tax cuts -- if you look at his budget proposal, his first year, he has a net tax increase of nine billion dollars.

Over five years, he has about five billion dollars in tax cuts. In other words, no tax cuts whatsoever. We want to provide tax relief. And Gene, I hope, we are going to reach out to the president. We are going to urge the president sign it -- the marriage penalty relief that we have on the floor of the Senate that we are going to pass tonight or tomorrow, is only like $56 billion over the next five years -- we certainly hope that the president will sign it and give some relief to people who are caught in this very unfair tax called a marriage penalty.

PRESS: Senator, here's my question to you. I'm astounded that you find time to deal with these two little tax cuts, when you have not found the time to do most other stuff the Senate ought to be doing. On May the 24th, the House passed the trade bill to normalize relations trade with China. The Senate has yet to even vote on it. That affects millions and millions of American workers and businesses, and yet you are passing -- let's go back to estate tax -- which only affects, you know, a handful of Americans. Where are your priorities, Senator?

NICKLES: You are a good instrument of the Democratic Party, Bill.

PRESS: No, I'm an American.

NICKLES: We're trying to give tax relief to Americans. Frankly, the marriage penalty relief will affect, I think, in excess of 50 million American families. And we want to pass that. We want to put it on the president's desk. And we urge him to sign it. President Clinton is the only person that is stopping death tax relief.

PRESS: Isn't it really true, Senator, you're not looking for a solution, you are just looking for an issue? You want a veto so you can campaign on this around the country. As Bob said earlier, this is the election year minuet, isn't it?

NICKLES: No, I disagree. We want to pass tax relief. We urge the president to sign it. We are reaching out to the president. This is what I would consider very small tax relief, as Bob mentioned earlier, and the president should sign it. We should eliminate the tax on marriage. We have a chance to do it. We are going to give it to the president. And certainly, and hopefully, he will sign it.

SPERLING: Senator, you know that it is just the opposite. We are offering a compromise on the estate tax for family farms, small business, under eight million. We are offering two-year marriage penalty even though it's not targeting (CROSSTALK)

NOVAK: Gentleman.

SPERLING: If you will just do prescription drugs, half the people watching who are elderly don't have prescription drug coverage for one month of the year.

NOVAK: We're going to have to -- Gene Sperling, thank you very much. Senator Don Nickles, thank you very much.

And Bill Press and I will be back with closing comments.


NOVAK: Bill, a prediction. You got a late start, but I think you're going to make a lot of money in the next few years. You're going to build up an estate. You want it. You're going to want to leave it to your children and not give it to the government for wasteful programs. And I predict, in ten years, you're going to be on my side on this.

PRESS: Bob, this is -- I hope I make as much money as you do -- this issue is a phony as a three-dollar bill, and you know it. Listen, Bob, you can already leave -- by the time I get away, I can leave up to eight million dollars tax-free, Bob. You know what, I'm not going to shed any crocodile tears because Bill Gates' kids are going to have to get by with $50 billion instead of $100 billion.

NOVAK: It's you and me.

PRESS: It's the wealthiest Americans, Bob. I'm not in that category.

NOVAK: It's you and me. It's not the wealthiest Americans.

PRESS: Top two percent.

NOVAK: Your children are going to eligible for this. And, if I were them, I'd call you up tonight and say, Dad...

PRESS: Shut up.

NOVAK: ... get off this Marxist baloney. Protect us.

PRESS: I'll be like this (CROSSTALK) public spirit.

From the left, I'm Bill Press. Good night for CROSSFIRE.

NOVAK: From the right, I'm Robert Novak.

Join us again next time for another edition of CROSSFIRE.



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