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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 Times 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 percent 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 Wall Street Journal after
the June 9 vote 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 and Means Chairman Bill Archer put it in the
package to attract Democrats — which it did in a big way.

OK, 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 file 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: “‘Death tax’ no longer hits
only the rich”

If
you decide to write something about this, you can use some of their
material.

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