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Clinton gets bill to phase out estate taxes

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WASHINGTON — The Senate sent President Clinton a Republican bill Friday that would eliminate estate taxes over the next decade in defiance of a veto threat and Democratic criticism that it is tilted toward the rich.

Nine Democrats joined most Republicans in the 59-39 vote to pass the bill, which would completely eliminate the estate tax by 2010 at a cost of about $105 billion in government revenue. The vote was well short of the two-thirds necessary to override a veto.

Senators had attached amendments providing billions of dollars in other tax breaks, including repeal of the 102-year-old telephone tax, but those were all deleted on a 53-45 vote. GOP leaders said they wanted to force Clinton to make a clear decision on an estate tax repeal bill free of other complications.

The Senate then immediately began debating the next big Republican tax cut: a 10-year, $248 billion measure slashing income taxes for millions of married couples, including 25 million who pay more than they would if single. Votes are expected next week on that bill.

Earlier, the Senate balked at adding another popular provision to the bill. An amendment by Sen. Spencer Abraham, R-Mich., to suspend the 18.3-cent-a-gallon federal gasoline tax until after the November elections was defeated 59-40. Abraham said the temporary tax reduction was needed to lower high fuel prices. Opponents said it would jeopardize money for road building and other transportation projects.

Republican supporters said the estate tax, which reaches a top rate of 55 percent, hinders investment and job creation, forces millions of people to do costly estate planning and particularly hurts farmers and small businesses.

"No family, no farm and no business should have to worry about this sort of thing," said Sen. William Roth, R-Del.

The bill, which passed the House in June, would cut the top 55 percent estate tax rate in 2001 and then gradually phase out all other rates, with full repeal coming in 2010. The cost was estimated at $105 billion during the phaseout, ballooning to $750 billion in the decade after repeal would be in effect fully.Republicans said the government's revenue loss would be cushioned somewhat because the bill changes the way assets are valued — known as basis — so that an heir would owe higher capital-gains taxes than under current law once an inherited asset is sold. Capital-gains tax rates, however, are much lower than estate tax rates.

"It removes death as the trigger for any tax," Sen. Jon Kyl, R-Ariz., said of the repeal bill.

Senate Minority Leader Tom Daschle, D-S.D., said Clinton would certainly veto the bill and that Democrats would be able to sustain it. "This isn't going anyplace," he said.

Both sides used the debate to highlight some of their other tax cut priorities. In some cases, the votes were intended mainly for political consumption by senators up for re-election this year.

In votes Thursday, the Senate:

—Approved, 97-3, an amendment by Roth to repeal on Sept. 1 the 3 percent excise tax on telephone service that dates from the Spanish-American War. A House-passed version would phase out repeal over three years.

—Approved, 58-41, an amendment by Sen. Rod Grams, R-Minn., that would repeal a 1993 law imposing income taxes on 85 percent, instead of 50 percent, of Social Security benefits for people with earnings over $34,000 for a single taxpayer, $44,000 for a married couple.

—Approved on a voice vote an amendment by Sen. Charles Grassley, R-Iowa, giving several tax breaks to farmers, including creation of tax-deferred accounts in which they could deposit up to 20 percent of their earnings. The measure also would repeal a law passed last year forcing small businesses to pay income taxes on certain sales immediately, even if the buyers were paying in installments.

—Voted 98-1 to make the business research and development tax credit permanent. It was extended last year for five years.

Abolition of the estate tax is a top priority for Republicans and several powerful lobbying groups, including the National Federation of Independent Business, the National Association of Manufacturers and the American Farm Bureau.

It is supported by Texas Gov. George W. Bush, the presumptive GOP presidential nominee, and is certain to be an issue in the fall presidential and congressional campaigns if Clinton follows through on his veto threat.