Fallen senator takes on 'death tax.'(Bob Packwood lobbies against estate taxes)(Cover Story)(Interview)

Bob Packwood is back. Less than two years after he resigned his Senate seat in disgrace, dogged by sexual-harassment charges, the former Republican Senator from Oregon has set up shop as a lobbyist in Washington, D.C. From a small basement office on Wisconsin Avenue, Packwood is lobbying his former colleagues on Capitol Hill to abolish the federal estate tax.

Sunrise Research Group, Packwood's firm, is a one-room operation downstairs from a dry-cleaners, in a four-story building surrounded by restaurants and shops. The office is crammed with books from Packwood's personal library, including limited editions of Huckleberry Finn and the Life of Abraham Lincoln, and with personal memorabilia -- pictures of Packwood with Presidents Nixon and Bush, squash trophies, a "Dear Bob" letter from Ronald Reagan.

Packwood sits at a desk facing the door, under a portrait of Winston Churchill. His secretary sits at a desk next to him. She offers me some instant coffee, which she produces from a file-cabinet drawer, and directs me to a faded couch in the middle of the room.

In 1995, Packwood became a national laughingstock. Comedians and columnists from coast to coast mocked him for making startling and seemingly indiscriminate sexual advances on the women he worked with. They dubbed him "the Tongue," and pillaged his now-famous, federally subpoenaed diaries for material (The Washington Post actually serialized the juiciest parts). He's making his comeback in Washington championing tax breaks for people who have more than $600,000 to leave to their children -- a cause that seems almost obscene in this era of budget-balancing and belt-tightening for the poor. It doesn't sound like a political winner.

But Packwood is plugging away. "I'm working on the Senate side -- my real friends are in the Senate," he says. "They've been very generous in having me back, and letting me in to see them."

And, he says, he's confident his cause will prevail.

"I think within three Congresses, the estate tax will be repealed," Packwood says. "You can smell the momentum."

The former chairman of the Senate Finance Committee. Packwood helped draft the last major overhaul of federal tax law in 1986. He knows his issue cold. And he clearly enjoys talking about it.

"Back up a minute. What was the purpose of the estate tax when it was established in 1916?" he asks, rocking in his chair. "First, it was to redistribute wealth -- take money from the rich and give it to the poor. Well, if you took the small amount of money raised by estate taxes and gave it to the poor, it wouldn't do much good. It doesn't raise enough money for redistribution."

As it happens, total annual revenue from the estate tax -- about $17 billion, or 1 percent of the federal budget -- just about equals the size of the federal AFDC program.

"Secondly," says Packwood, "the estate tax was intended to break up the concentration of wealth. Back then, we were thinking of people like the Rockefellers and the Jay Goulds. But very wealthy people know how to plan a chili's estate from the time they're one year old. They know you can give away $10,000 a year tax-free. The problem comes with the woman who starts her own business at age thirty-five. She's not liquid enough to give away $10,000." Small-business people can't keep the business in the family because of estate taxes, Packwood argues. Their children end up selling the family farm or the store, just to cover the tax bill. "And who is it sold to? It's not usually another family business. It's a big conglomerate, which is another form of concentration of wealth."

There is some truth to this. Family farms and small businesses can be hit hard by estate taxes. But the majority of them are exempt from the tax, which only affects estates worth more than $600,000. (Currently, the estate tax takes 37 percent of every dollar in assets over $600,000 and moves up a scale, topping off at 55 percent of assets worth $3 million or more.) Only one-half of 1 percent of estate-tax payers are family farmers. Taken together, closely held family businesses and farms make up fewer than 7 percent of taxable estates, says the Joint Committee on Taxation.

Under current law, small, family-owned businesses are already eligible for some special treatment, including deferring their payments on estate taxes for up to fourteen years. There are various proposals floating around Congress that would target further relief to family farms and businesses. There appears to be bipartisan agreement on a plan to raise the exemption from taxes on estates worth $600,000 to about $1 million. But Packwood and his clients are for total repeal -- which would mainly benefit the very rich.

Packwood is close to the vest about his clientele. "I'm going to keep that to myself." he says, when I ask how many clients he has. His lobbyist registration form lists only one client -- a coalition called American Business Is Local Enterprise. Members are "mostly natural-resource-based industry," he says -- in particular, family-owned lumberyards. What are they worth? "I haven't bothered to ask," says Packwood. "None. to the best of my knowledge, reach stratospheric values. But I can't imagine they're worth less than ten or fifteen million. . . . A lumberyard isn't an operation you just start up with a few thousand dollars of capital."

More than 98 percent of Americans pay no estate taxes at all. Yet, thanks to the budget rules Packwood helped write, any cut in the estate tax will have to be paid for with a dollar-for-dollar reduction in direct federal expenditures. Most likely, that will mean cutting entitlement programs that tend to benefit low- and middle-income people. Isn't that an awfully hard sell?

Not at all, says Packwood. In fact, the main reason he's so optimistic about abolishing estate taxes is that the little guy is for it.

"Go into a mill and talk to the guy or woman who is working forty hours a week, and they're lucky if they're making $35,000 a year -- these are people who will never be in an estate-tax bracket in their lives. Talk to them about estate taxes. Ask them what they think the owner ought to pay in estate taxes when he dies. When they discover that 55 percent of everything he has worked for and saved all his life goes to the government. they're appalled. There's something in the bones of the average American citizen that says it's unfair."

Five hours before a House Ways and Means Committee hearing on the Republican tax package, people are lined up in the corridors. waiting to get in. Young people in jeans and T-shirts lounge against the wall. Are these Packwood's ordinary citizens. here because they are persuaded by the moral force of the argument against estate taxes?

"We get paid to hold spots for clients." a friendly young African American man informs me. He has no opinion on estate-taxes. A guy with blond dreadlocks and a tattoo of a court jester tells me he's working for a courier company that contracts with lobbyists. He's holding a spot for Delta Airlines. (The committee later defeats a proposal to increase the airline-ticket tax.) The line starts moving, and he grabs his walkie-talkie to pass the word: "We're going in!"

Inside the hearing room, the crowd is transformed into an army of men in suits. Some lobbyists. representing big companies like Delta. have specific concerns about taxes that affect their particular industries. Others are here for the estate-tax breaks. The momentum for estate-tax repeal, which Packwood says he smells, is evident. Lobbyists representing small-business coalitions are zeroing in on estate taxes.

The National Cattlemen's Beef Association is one of the groups pushing the hardest against estate taxes. Dale Moore, the Cattlemen's lobbyist, has been staking out tax hearings in both the House and Senate all summer to argue for estate-tax relief. Moore represents some 230,000 ranchers, about half of whom, he says, have been operating the same family business for more than fifty years.

The Beef Association's offices on Pennsylvania Avenue are opulent compared with Bob Packwood's basement digs. Brass sculptures of cowboys, horses, and a leaping longhorn, set on hairy scraps of hide, decorate the spacious, wood-paneled lobby. Next to a leather couch and matching leather chairs is a set of leather-bound volumes of The Old West. Moore leads me back toward his office, under an enormous pair of horns.

"The cattlemen are for full repeal" of the estate tax, Moore says. "Our position is that death is a lousy thing to tax. One of our members in Florida looks at the estate tax as basically grave-robbing."

Moore points out that cattle ranching is a capital-intensive business, with a low margin of return: about 3 to 6 percent. "If you have a 200-cow operation, which is a pretty small operation, you'd be up over $600,000," he says. "If you have a $3 million business, now you're in a bracket where they take over half your estate."

Sure, he's glad to see Congress sliding up the scale, and moving toward exempting estates worth as much as $1 million from "death taxes." But like Packwood, Moore emphasizes the philosophical side of the issue: "In addition to the economic impact, our members simply believe it is wrong to tax death," he explains. "Our guys -- whether it's a small guy or a huge guy -- generally he's involved in a business where each succeeding generation has worked to build the business, and make it more efficient. The government hasn't done anything. The government has been riding the wake, collecting income taxes."

This anti-tax sentiment is a familiar refrain among "death-tax" abolitionists. In fact, it is literally a jingle over at the National Federation of Independent Businesses, where, if you call and are put on hold, you will hear someone singing: "Don't allow your life's work to be left in the hands of government."

"Over the years our members have become more and more outraged about this tax, which says when you die, we're going to take half of everything you own," explains James Wickett of the Federation.

Wickett is the co-chair of the huge Family Business Estate Tax Coalition, an umbrella group that includes the Cattlemen. "People have this idea that we should just sock it to the rich -- that they don't deserve their inherited wealth," says Wickett. "But the reality in this country is that it tends to be wealthy people who are creating businesses and creating jobs. If we wanted to go with a socialist society -- well, it seems to me we made that decision a long time ago."

Bernie Sanders, the only socialist in Congress, concedes that small farmers in his Vermont district might support estate-tax repeal at first glance. "But if you sat down and talked to them about it they wouldn't," he says. Sanders supports targeted reductions in estate taxes, specifically geared to family farms. "The plight of the family farm is an enormous tragedy," he says. But he doesn't buy the general argument that all estate taxes should go.

"The Republican campaign against taxes is to say, `Look, I'm giving you $5 and him $100 million, and we're all in this together," Sanders says.

"If we're dealing with a nation where the richest 1 percent have 40 percent of the wealth, should we have more progressive taxation? Yes. Should we have steeper taxes on the rich in general? I think we should look at that."

Surprisingly, there are some conservative free-marketeers who agree that the estate tax should be used to level the playing field. Irwin Stelzer of the American Enterprise Institute makes the contrarian argument that the government should impose an almost confiscatory tax on estates to make the children of the rich seek their own fortunes. Sanders chuckles and raises an eyebrow at this idea. "Why not?" he says.

But short of that, Sanders is optimistic that he and other members of the Progressive Caucus in Congress can push for a fairer deal on the budget and taxes. "While the real goal of the Republicans is to protect the interests of their millionaire friends, obviously that's not the way they advertise it," he says. "The more we can openly debate the issue, the more public support we'll win, and the more we can press Clinton," he says.

Still, the Republicans have done a remarkable job of rallying support behind a program that favors the rich at the expense of the rest of the country. During the mark-up of the Republican tax bill by the House Ways and Means Committee, Chairman Bill Archer, Republican of Texas, made the bald-faced argument that the government should not give tax credits for child-care or education to people who don't earn enough money to owe taxes. In other words, the tax credits should go only to the families that need them the least.

There are a few people besides Sanders who openly contest this view. Some of them are wealthy themselves. A new group based in Boston called Responsible Wealth consists of a network of about 100 business leaders and wealthy individuals who are calling for economic justice and an end to tax breaks for the rich. Among them are a CEO at Kodak, an heir to the Pillsbury fortune, and a grandson of the Oscar Mayer founder, who has given much of his inheritance away.

"One in four children in this country is born in poverty. And everyone in my family was born with a few hundred thousand dollars to their name.... I think giving more money to me is counter to my long-term interests and the interests of the country," says Mike Lapham, a founding member of Responsible Wealth.

Lapham's family has run a paper mill for five generations. "My parents just got through dealing with my grandmother's estate, which was well beyond $600,000, and it created some problems in terms of figuring out what you keep and what you have to sell and how you pay the taxes," says Lapham. "But I think everyone recognized, What is one family going to do with all that wealth?' The money from the paper mill my family owns really belongs to the country and the community -- it's money the whole community earned. After a generation, it makes sense to redistribute it."

Which is a wackier idea for most Americans -- Responsible Wealth, or Bob Packwood, poster-boy for elite populism? Packwood believes he'll win the public-relations war. And, as he spins it, he's making a perverse kind of progress. The $1 million exemption that has received tentative bipartisan approval in Congress is so paltry, he says, that it hasn't split his coalition.

"What we were afraid of is that the House and Senate would come out with a fairly large family carve-out.... If they went up to, say, $5 million, you could lose a great part of the strength of your coalition." In other words, people with estates worth $5 million or less would abandon the cause. We said all along that if they went to $1 million, that's such a low level it doesn't make any difference."

If Packwood is right, the mega-rich can sleep soundly: Estate-tax relief, when it comes, will apply even to them.

Maybe Packwood does have the American psyche on his side. "Go to my guy in the lumber shack, or the coffee mill," he says. Tell him you're for a 55 percent tax rate, even if it's only on the tiniest wealthy elite: "He'll say, `What? I work hard all my life, and you tell me I can't leave any more to my children than my good-for-nothing neighbor who didn't save and drank and frittered away his money' -- he'd run you off the property."

As for Packwood himself, does he have any reflections on the troubled course of his own career? He sighs.

"That's a conversation for a long dinner." he says. Probably even a "sensational, blockbuster book. Check your schedule and call me back." But that would be another story.