House votes to end estate taxes (Reuters)

WASHINGTON (Reuters) - The U.S. House of Representatives on Wednesday voted to permanently end the estate tax as part of a Republican push to extend President Bush's tax cuts beyond the end of the decade.

The House voted 272-162 to repeal the estate tax with 42 Democrats joining the Republican majority in support of the bill.

The bill goes to the Senate where its fate is unclear in the face of mounting worries over the nation's rising debt and concern it could curb charitable donations.

Permanent repeal of the estate tax is a high priority for many business groups, and Republican backers called it a tax on death that thwarts savings and investment. They argue permanent repeal now will help family businesses plan for the future.

"As a matter of basic fairness we must permanently repeal the death tax," said Rep. Kenny Hulshof, a Missouri Republican. "The death of a family member quite simply should not be a taxable event."

The 2001 tax cut package phased out the estate tax with total repeal in 2010. But after 2010, the estate tax along with income tax rates are scheduled to revert to levels in effect before the tax cut. Bush vowed during his re-election campaign last year to extend those tax cuts and Wednesday's vote in the House was the first effort to make good on that promise.

Democrats argued that the estate tax affects only the richest Americans and that huge budget deficits are forcing spending cuts on health care for poor children, education and other programs. Democrats said repeal will cost the federal treasury $290 billion in the first four years and more than $700 billion over the decade.

"While we may help a few very rich children with an inheritance, we'll cut hundreds of thousands of children's Medicaid benefits," argued Rep. Pete Stark, a California Democrat.

The House rejected a Democratic substitute offered by Rep. Earl Pomeroy of North Dakota that would have exempted estates valued at less than $3.5 million, $7 million for couples, from estate taxes. He argued that would end the tax for more than 99 percent of estates.

The 2001 package gradually raised the estate tax exemption from $1 million in 2002 to $1.5 million currently, and $3.5 million in 2009 for individuals and double that amount for couples. Rates that topped 50 percent are gradually being reduced to 45 percent in 2009 before total repeal for one year.

Support in the Senate for eliminating the estate tax is strong. But record budget deficits are weighing on lawmakers and it is unclear whether backers would win the 60 votes needed to overcome procedural hurdles in the 100-member body.

Also charitable groups are worried that repeal will hurt contributions that are often made as a way to avoid the tax.

Discussions are underway for a possible compromise that could increase the level of exemption from the tax and lower the rate, according to Senate aides and industry representatives. But they said the outcome of those talks is unclear.