sisyphusshrugged | where the money goes

worthy beneficiaries of government assistance

President Bush's 10-year, $1.35 trillion tax cut in 2001 included a slow phaseout of the estate tax by 2010, but the tax is reinstated in 2011 when the entire 2001 tax law expires. As those dates approach and concern grows over record budget deficits, some family-owned businesses and affluent heirs have begun appealing to lawmakers for a deal that would provide estate-planning certainty, even if it means setting aside full repeal.

Grassley has thrown his weight behind that effort. "We need certainty," said a Republican Finance Committee aide. "We cannot continue on with this course."

That uncertainty has begun splitting the once-steadfast coalition of affluent families, small business groups and farming organizations that have pushed full repeal for more than a decade. Lobbyists from Patton Boggs, backed by the heirs of the McLean-based Mars candy fortune, among others, are pushing the lowest estate tax rate they can get. Small-business lobbyists want the highest exemption they can get.

In deference to both those positions, the Republican starting position would set the value of an estate excluded from taxation at $10 million, with a 15 percent tax rate for estates larger than that. The value of estates sold by their heirs would be calculated based on their worth at the time of their owner's death, rather than current law, which sets the gain in value of an estate at the cost of the estate's assets when they were first purchased.

"If the United States Senate came up with $10 million-per-person exemption and a 15 percent rate similar to capital gains, almost everybody in the small-biz community would be thrilled with that," said David K. Rehr, president of the National Beer Wholesalers Association.

But the cost of that would likely be almost as high as a full repeal, since virtually no estates would remain subject to tax.

people who should just suck it up

As many as 61,000 military widows whose husbands died of causes relating to their military service lose out on thousands of dollars a year in survivor benefits because of a law that dates from the 1970’s.

Widows and retirees have spent decades trying to persuade Congress to change the law, which hits hardest at the widows of lower-ranking service members and is referred to by many critics as the “widow’s tax.’’

The Senate passed such a change last year and again this year as part of the military authorization bill. But House Republican leaders oppose the change because of its steep price tag, nearly $9 billion over 10 years, Senate legislative aides from both parties say.

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“My husband thought he was securing my future,” said Edie Smith, a member of the Gold Star Wives, a group of military widows who are lobbying to change the law. “He didn’t realize his own disability would void the benefit he purchased for me.”

A 1972 law created the Survivor Benefits Plan, a Department of Defense retirement income fund similar to a life insurance policy. The plan, in turn, pays benefits calculated according to a dead service member’s rank and length of service.

In addition, widows of veterans who died of service-related causes receive monthly cash stipends from the Department of Veterans Affairs. Known as the Dependency and Indemnity Compensation stipend, it is currently $1,033 plus $257 for each child.

But under the law, which placed restrictions on the plan that it created, the payment to widows enrolled in the Survivor Benefits Plan is reduced, dollar for dollar, by the amount of the Dependency and Indemnity Compensation stipend.

For example, a widow who would be entitled to $1,000 from the Survivor Benefits Plan and the $1,033 Dependency and Indemnity stipend receives $1,033, not $2,033.

Widows whose husband paid into the plan are reimbursed their premiums, without interest, but the amount is taxed and does not make up the losses from the plan.

The Department of Defense opposes changing the law to allow both payments, arguing that survivors should not receive two separate benefits for a single death.

But widows and their supporters say that the Pentagon’s opposition to a change in the law really stems from its cost, especially at a time of rising expenses for the war in Iraq.

They also argue that because service members paid into the Survivors Benefits Plan, its benefits should not be reduced.

“If you take one benefit from another, you don’t leave the survivor with very much,” said Col. Lee Lange, the deputy director of government relations for the influential Military Officers Association of America, which has made this issue a priority. “These are widows. Let them collect both.”

Juan del Castillo, a retired Coast Guard commander who has been paying into the plan since 1972, accused the Pentagon of “stealing money from widows.”

“They are financing their operation from money stolen from military widows,’’ Mr. Castillo said. “They have been doing that since 1972.’’

Senator Bill Nelson, Democrat of Florida, who has pushed for five years to change the law, said he had allies in the chairman of the Armed Services Committee, Senator John W. Warner, Republican of Virginia, and the committee’s ranking Democrat, Senator Carl Levin of Michigan. The $9 billion price tag needed to insure a full payout under both plans sounds expensive, Mr. Nelson said, but is less than the price of a single aircraft carrier.

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Representative Duncan Hunter,* Republican of California and chairman of the House Armed Services Committee, does not support including the change in this year’s military authorization bill. But he has said Congress is doing right by the widows, pointing out that last year it approved significant increases in life insurance payouts and death benefits.