In the wee hours of Saturday morning, the House passed, by a margin of 230 to 180, a collection of tax cuts (AKA "extenders"), an estate tax cut, and a minimum wage increase from $5.15 to $7.25. Known as the "trifecta", the bill is now in the lap of the Senate as the House voted and quickly left town for its August recess.

The question now is: Are the "sweeteners" in this bill going to cause enough Democrats to jump ship and vote for an estate tax gutting?

From the Washington Post:

But the maneuvering by House and Senate GOP leaders to package the measures over the objection of some Senate chairmen caused severely bruised feelings. Lawmakers from both parties said last night that the legislation could easily collapse in the Senate, underscoring Democratic contentions that Congress has become dysfunctional.

"It's a risk," said House Majority Leader John A. Boehner (R-Ohio), "but I think it's the only way to proceed."

Democrats were incensed that the GOP leadership would couple the minimum wage hike, the first increase since 1997, with an estate tax cut that would reduce federal revenue by $268 billion over the next decade, to the overwhelming benefit of the country's richest families.

"This is beyond cynical. This is disgraceful," said Rep. Jim McGovern (D-Mass.).

Senate Minority Leader Harry M. Reid (D-Nev.) signaled he would try to scuttle the tax bill next week. "Republicans have made perfectly clear who they stand with and who they are willing to fight for: the privileged few," he said.

House GOP leaders have come up with a new strategy to push a permanent estate tax reduction through Congress by tying it to a minimum wage increase and extension of expiring tax breaks. The House could vote on that package later Friday, along with a final pension overhaul bill that would receive a vote in the Senate only if the chamber first passes the “trifecta” bill. The long-running, deadlocked House-Senate conference on the existing pension bill (HR 2830) would remain open as a fallback.

So putting it on the extenders package of tax cuts was not enough. Now they want to throw in the minimum wage increase. Wonder if anyone thought about the irony of passing an estate tax reduction (which would give people worth more than $5 million more money) in conjunction with an increase to the minimum wage (which still stands at $5.15 per hour and has not been increased in ten years).

Just to note, a minimum wage worker who works full time (40 hour weeks) would have to work for 466.76 straight years without taking a day off to make $5 million - assuming the worker did not need to spend any money at all that is. Maybe by that point Congress will wake up and realize how misplaced their priorities are.

The question of whether the Senate will return to consider the estate tax again this year is intimately connected to the fate of the pension conference report.

It appears meeting of the pension conference committee last night was tense and saw lawmakers expressing their frustrations with the current situation. According to media reports, a number of members present were quite forthright in their unhappiness about the House boycott of the meeting and recent events.

Senators Enzi and Kennedy expressed disappointment that House leaders failed to show up and Congressman Charles Rangel (D-NY) wondered, "How in the devil is this small group of people so powerful that they can hold hostage legislation that affects millions of working families?" Sen. Max Baucus (D-MT) and Rep. Robert Andrews (D-NJ) stated the only reason the pension conference has broken down is because of the GOP's efforts to reduce the estate tax.

But by far the most forthright comments came from Sen. Charles Grassley (R-IA):

I don’t know why you wouldn’t have guts enough to come forward and cast a vote [and be very transparent]. Nobody’s going to lose any blood by coming over here and being a man or a woman.

I don’t know what’s up, but I’m a bit shocked that others who were parties to the agreement and who accepted the benefits of the agreement and [were] the beneficiaries of my credibility are so reluctant to live up to it. I’ve kept my word and I will still keep my word even if I am knifed in the back.

It may be difficult for the conferees to repair the damage with only one day left before the House adjourns for the August recess.

Drama continues to unfold on Capitol Hill as the hot summer heat seems to be getting to members of Congress. We posted yesterday of a "showdown" meeting of members of the long-stalled pension reform conference committee that took place last night. But the meeting did not go as conference chairman Sen. Michael Enzi (R-WY) planned as House GOP conferees boycotted the meeting

Enzi called the meeting to force a vote on whether to strip a package of tax cuts (callled "extenders") from the pension bill or not and bring an end to an impasse that has delayed the reform bill in its final stages. But the strategy backfired as only two House conferees, both Democrats, showed up for the meeting. It now appears as though the entire pension reform agreement may be about to collapse. House and Senate leaders are rumored to be taking one more stab at compromise today before the House recesses until September.

The effort to pull out the extenders package is being undertaken in an effort to give the Senate one more chance at passing a roll-back of the estate tax this year. Sen. Majority Leader Bill Frist (R-TN) hopes by holding the popular extenders package until September and adding an estate tax cut to it, he will finally be able to push through another tax cut for the richest of the rich in the Senate. He has failed at three other attempts this year to do so.

More info will be posted here as events play out in Washington today.

The House is unexpectedly expected to vote on a minimum wage bill today. House GOP members are trying to tie the $2.10 minimum wage hike to a health insurance provision affecting small businesses. There is also speculation that Republicans are going to attempt attaching a permanent estate tax cut to the bill.

BNA (subscription required):

House Republicans July 27 appeared close to a deal on a legislative package that would link a minimum wage increase to wage-related sweeteners for business and a plan to allow small businesses to provide health insurance to their workers via association health plans (AHPs), according to lawmakers close to the negotiations.

The package, which would raise the federal minimum wage from $5.15 to $7.25 per hour over two years, also would allow restaurants to use "tip credits" when calculating wage rates for employees and would permit employers to offer a "training wage" for younger workers, the lawmakers said.

A vote on the package could occur as early as July 28, according to several moderate Republicans who have been pressing House Majority Leader John Boehner (R-Ohio) for a vote on the minimum wage before the House adjourns for an August recess.

[...]

Rep. Steve LaTourette (R-Ohio) said lawmakers involved in crafting the package are making a concerted effort to avoid including tax provisions. "Democrats are daring us to put a package up that has tax cuts so that we dare them to vote against the minimum wage. That's the game," he said. "I think that anybody who's expecting poison pills and tax cuts is going to be sadly mistaken."

[...]

Democrats wasted no time in responding to rumors of a minimum wage deal, calling for an up-or-down vote on the wage hike. "Before Congress goes home for August recess, we must have a vote on the House floor to raise the minimum wage to $7.25. But that means a clean bill--a straight up-or-down vote on increasing the minimum wage, without the usual Republican poison pills of attaching tax cuts for the wealthy or other so-called sweeteners for the Republican special interests," House Majority Leader Nancy Pelosi (D-Calif.) said in a statement.

(Recall that Boehner is blocking the Labor-H approps bill from seeing the floor because of the minimum wage amendment that is attached to it. A vote on a standalone minimum wage bill would obviate that amendment, so the House could conceivably be done with its funding work before the end of the fiscal year.)

The conference committee considering the pension bill will hold a vote on whether or not to include a set of tax provisions - know as "extenders" - in the pension bill being considered. By moving the extenders out of the pension bill, the GOP leadership hopes use the extenders as a "sweetener" for an estate tax reduction bill to garner the 60 votes needed overcome a filibuster.

Bloomberg:

Senate and House negotiators will hold a showdown vote today to decide whether to add tax breaks to a measure to overhaul the private U.S. pension system and how many airlines should get extra time to shore up their retirement plans.

Wyoming Senator Michael Enzi, the Republican chairman of the Senate-House conference committee negotiating the issues since March, said lawmakers will vote at 6 p.m. tonight on the two issues, which have been the main roadblocks to agreement on the pension measure.

[...]

The House and Senate differ on whether to renew about two dozen breaks including a popular research credit in the pension measure or use them to attract votes for separate estate tax legislation. They've also been unable to agree on how many airlines will be given extra time to shore up their pension plans.

Things are moving quickly in Congress this week as repeated, desperate attempts to pass a drastic reduction in the estate tax before the end of the year continue to unfold. After failing to attach a permanent cut to the tax to the pensions conference report, House and Senate GOP leaders (lead mostly by Senate Majority Leader Bill Frist (R-TN) and top House tax writer Bill Thomas (R-CA)) are moving forward with plans to remove a set of non-controversial tax cut "extenders" from the pension bill in order to combine them with an estate tax cut. Having been unable to bring the estate tax issue before the Senate on its own merits, legislators are now resorting to manipulating Congress - trying to use long-agreed upon bills to entice out the remaining votes needed.

House Speaker Dennis Hastert (R-IL) announced today that the House will hold a vote later this week on the combined tax package of extensions of the expiring provisions (the "extenders" bill) and a modified estate tax reform before they recess until after Labor Day.

Senate Finance Committee Chairman Chuck Grassley (R-IA) has already spoken out against including anything related to the estate tax in the non-controversial extenders bill and other members of both the House and the Senate are apprehensive of the proposal to remove those non-controversial tax cuts from the pensions conference report in the first place.

New details become available often and we will post any updates or new information, so check back to the Budget Blog often.

For more information: Bloomberg News coverage

"I think it's sufficient to say adding the estate tax to the pension conference report would have jeopardized the pension conference report." She added that the estate tax measure should be considered on its own merits following an effort to "work across the political divide."

[...]

"We need to have a transparent, fully accountable process," she said, adding that it is obvious Republicans need support from Democrats to gain approval of the measure.

...yet this is merely a flesh wound for the campaign to permanently reduce the estate tax. (Paging Dr. Frist...paging Dr. Frist).

From CQ Today:

Senate GOP leaders...might link a compromise estate tax proposal to a package of popular tax cut extensions that could be considered after the August break.

[...]

But Frist vowed to seek another vehicle to move the legislation important to the Republicans’ conservative base.

"I’m committed to a permanent solution to the ‘death tax,’" Frist said.

Staff and lobbyists said one path under consideration is linking the permanent estate tax reduction to a package of tax cut extensions, which include the research-and-development tax credit.

Slashing the estate tax is a really bad thing, and we're doing everything we can to maintain this most equitable and progressive part of federal tax policy. Here's the good news, though: Elections are coming up in November, and this is why Congress is trying so ardently to reduce the estate tax. And, I have reason to believe that when Senate Majority Bill Frist retires in December, we won't be seeing this much focused effort to dismantle the estate tax.

So, keep checking back here for important estate tax updates, and be on the look for a possible Action Alert in a few weeks when the Senate tries to revive estate tax reduction.

David Cay Johnston reports in the Sunday New York Times that the IRS has plans to eliminate 157 of the most productive IRS employees. And, those IRS employees are estate tax lawyers and the staff who support their auditing activities.

The federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.

The administration plans to cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, in less than 70 days. Kevin Brown, an I.R.S. deputy commissioner, confirmed the cuts after The New York Times was given internal documents by people inside the I.R.S. who oppose them.

[...]

Estate tax lawyers are the most productive tax law enforcement personnel at the I.R.S., according to Mr. Brown. For each hour they work, they find an average of $2,200 of taxes that people owe the government.

Mr. Brown said that careful analysis showed that the I.R.S. was auditing enough returns to catch cheats and that 10 percent of the estate audits brought in 80 percent of the additional taxes. He said that auditing a greater percentage of gift and estate tax returns would not be worthwhile because "the next case is not a lucrative case" and likely to be of relatively little value.

That is a change from six years ago, when the I.R.S. said that 85 percent of large taxable gifts it audited shortchanged the government. The I.R.S. said then that it would hire three more lawyers just to audit taxable gifts of $1 million or more.

Over the last five years, officials at both the I.R.S. and the Treasury have told Congress that cheating among the highest-income Americans is a major and growing problem.

The New York Times: I.R.S. to Cut Tax Auditors

Sen. Byron Dorgan wrote a nice op-ed in The Hill newspaper yesterday about the lunacy behind the calls to repeal the estate tax and what this issue is really all about:

this issue is about helping the wealthiest Americans avoid paying taxes on their inherited large estates. It’s about doing so even when our country is deep in debt and when we are fighting two shooting wars.

Dorgan's piece is worth a read.

With nation at war, estate tax repeal difficult to justify