By Cromwell Schubarth

Here's something you can count on this year besides death and taxes, Washington watchers say.

The amount your heirs owe when you go will drop, hopefully before you do.

President Bush last week proposed a 10-year phase-out of the inheritance tax, similar to a rollback vetoed last year by former President Clinton. This year, though, there appears to be enough momentum to abolish what critics call the "death tax."

That's good news to Larry Groipen, owner of Lynn's ERC Wiping Products Inc., who, despite only being in his 40s, says he pays thousands in insurance and legal bills to protect his estate from the taxman.

"I don't know if my two teens would want the business, but I already have to start planning for it," Groipen said of the company started by his grandfather in the 1920s. ERC today sells about $ 5million worth of cloths, rags and paper each year.

"Older friends have told me stories about families that had to sell out to cover the tax bill when the head of a business died," he said. "I'm very concerned about it."

Estate taxes now take up to 55 percent of individuals' estates worth more than $ 675,000 or more than $ 1.3 million for couples and family businesses.

Supporters of the tax, which raises billions in revenue annually, say the heirs of only 48,000 people, about 2 percent of those who die each year, pay any estate tax now. Nearly half the $ 16.7 billion collected in 1997, the latest year reported by the Internal Revenue Service, was paid by 4,000 people whose estates were worth $ 5million or more.

"Repealing the estate tax is costly, reducing revenues for both the federal and state government while providing a massive windfall for some of the country's wealthiest families," said Iris J. Lav, of the Center on Budget and Policy Priorities, in Washington.

Small business advocates, however, say effects of the tax go far beyond the people who pay it and the revenue it generates.

"There are tens of thousands more (people) who are affected by having to prepare for the tax by incurring legal fees and buying insurance," said Dan Blankenburg, of the National Federation of Independent Business, which advocates repeal. "A lot of insurance gets sold based on fear of the death tax."

Those who favor the tax - estate planners, lawyers, accountants and insurers - often have the most to lose from its demise, said Cecilia Adams, of the U.S. Chamber of Commerce.

"The tax has spawned an entire industry," she said.

Charities are also afraid of the potential impact of repeal, although researchers at the Boston College Social Welfare Institute say they shouldn't be.

Paul Schervish, the center's director, wrote last month that he believes charities could actually gain donations if the tax dies.

If people get to keep more of their money, they will donate more, he reasons.

His colleague at the center, John Haven, disagrees. "I don't believe there will be a massive reduction as some people believe, but I do think there will be a sharp reduction of 10 to 15 percent in charitable bequests."

Small business advocates Adams and Blankenburg said their groups support a compromise that isn't in Bush's plan - making larger estates subject to capital gains taxes.

Under the compromise, hammered out last year but blocked by former President Clinton, taxes would have been due when heirs of estates worth more than $ 5.6 million liquidated assets on which the deceased would have owed capital gains taxes.

"It garners a certain amount of support and takes away some of the impact on federal and state budgets," Adams said.

Blankenburg said the business federation's main mission is protecting small firms and their owners from having to sell out to pay estate taxes.

"The capital gains tax would only kick in if the business was being liquidated," he said. "That's OK with us."

Lav, of the budget and policy center, however, calls the capital gains compromise "a pretend policy that would never be implemented."

"A similar measure was passed in 1976 but later repealed in 1980 because Treasury and the IRS couldn't figure out how to implement it," she said. "It's very difficult with some assets that get passed down through generations to determine what the capital gain is."

Lav also said state governments will lose out on about $ 5.5 billion in annual revenue passed on by the IRS from estate taxes. Massachusetts got $ 166.5 million this way in fiscal 2000, state officials said last week.

Revenue Department spokesman Tim Connolly, however, said applying capital gains taxes could cover some of that gap.

Repeal advocates also argue that taxes collected on spending stimulated by killing the tax will help offset reductions.

U.S. Sen. John Kerry (D-Mass.) opposes killing the tax from his perch on the tax-writing Senate Finance Committee.

Kerry argues exemptions should be lifted instead, to $ 1 million for individuals and $ 2 million for couples and individually owned businesses and farms. Some businesses and farms could qualify for up to $ 4 million in exemptions.

"I believe with certainty that we need to address the severe burdens that family-owned small business and farmers face with the estate tax," he said last week. "My hope is that we can sit down in the coming months and find a serious compromise which removes unfair tax burdens from these businesses and farms immediately."

Meanwhile, estate planning professionals such as accountant John Napolitano, of U.S. Financial Advisers, in Braintree, urge people not to wait and see what happens before deciding what to do with their estates.

"Most of the impact of what Bush proposes won't kick in for a long time and could be changed," he said. "We recommend clients plan according to current law."

Photo Caption: ON TOP OF IT: Larry Groipen, owner of ERC Wiping Products Inc., of Lynn, is keeping a close eye on the battle over estate taxes, which makes it difficult for him to pass on his family-owned firm to his children. STAFF PHOTO BY NANCY LANE