Around 2 A.M. on Saturday the House of Representatives passed the Estate Tax and Extension of Tax Relief Act. The bill represents the latest compromise (sell-out, really) in a fight that until a couple of months ago was supposed to be about repealing the federal death tax completely and permanently. Now we’ve got a House bill that keeps the tax permanently on the books — with the estate-planning headache of a staggered phase-in — and hikes the federal mandated minimum wage by over 40 percent.
How did things go so wrong?
The estate tax is one of the most potent political issues Republicans have — just ask former Senator Tom Daschle.
When the 2001 law repealed the tax for one year, the strategy was to just extend it from there, daring Senate Democrats to vote against it and punishing them politically if they did. Majority Leader Bill Frist (R., Tenn.) was committed to holding a vote on total repeal, and he followed through. But a funny thing happened before along the way: The lead Senate sponsor of repeal, Jon Kyl (R., Ariz.), began to negotiate with himself publicly. Democrats, believing that they would have an opportunity to gain political cover from a compromise, held tough and blocked a vote on repeal.
The original Kyl compromise was a single 15 percent rate. But he then added a second bracket at 30 percent. After cloture failed in the Senate, House Ways and Means Chairman Bill Thomas (R., Calif.) stepped in with his own compromise bill, which included a top rate of 40 percent. The Thomas bill passed the House with 43 Democrats voting yes, a net gain of precisely 1 from the House vote for total repeal. There was no indication that any Senate Democrat who had voted against total repeal would vote for that Thomas bill.
Meanwhile, so-called moderate House Republicans were agitating for a huge increase in the federal mandated minimum wage, going so far as to block the House from adjourning if they didn’t get a vote. GOP leadership saw a great way to satisfy the moderates and get out of town while compromising still further on the death tax: They generated a modified version of the Thomas bill, with the top estate-tax rate dropping 2 points a year from 40 percent in 2010 to 30 percent in 2015 to the popular tax-reconciliation trailer package, while tacking on the minimum wage hike.
Embarrassingly, only 21 Republicans, led by Rep. Mike Pence (R-Ind.), the chairman of the conservative Republican Study Committee, voted against this mess.
The minimum wage is perhaps the worst example of feel-good government; economists are nearly unanimous that it suppresses employment, particularly for the young and minorities, while igniting “wage-push” inflation. Moreover, it is an extremely inefficient way to alleviate poverty, even for the working poor who don’t lose their jobs. (A more effective measure is the earned income credit.) Yet Democrats, and now many Republicans, are more interested in feeling good about themselves and boosting their talking points than in actually helping their constituents.
The venue for debate now shifts back to the Senate, where another difficult partisan fight to pass the bill will take place. I only can hope that enough Senate Republicans will oppose this latest deal.
When GOP leadership is being pressured by its own so-called moderates on an issue like the minimum wage, there is a deep problem with the party’s direction. Republicans need to regroup and center on their national agenda, which features the core economic issues of low taxes, low spending, and limited government. If the only way for that to happen is for the House to fall into Democratic hands this November, then it’s probably for the best.
– Mr. Kerpen is a policy analyst in Washington. His web site is www.philkerpen.com.