Lawrence J.
Haas
Read Larry's bio and previous columns
April 14, 2009
The Sad (and False) Tales of Victims of the Estate Tax
Policymakers in
Washington have come to accept “spin” as a normal feature of the
legislative process, with each side in a debate pushing a message and
bending facts so they best support its case.
But bending facts is
one thing, breaking them is another. In some cases, one side actually
ignores facts and creates a mythical reality – one based solely on
ideology. In no instance is this truer than in the current debate over
whether to reduce the federal estate tax beyond its reductions of recent
years.
That debate raises two
serious questions: Who most needs help from Washington at this time of
economic distress? And how should Washington allocate resources at a
time of huge budget deficits?
Under current law, the
estate tax is set to take a rollercoaster ride of irrational ups and
downs. Congress cut the tax in 2001 and, in doing so, also set it to
expire in 2010 but then return to its pre-2001 levels in 2011.
Why? Because, for
reasons of arcane budget “scoring” in Washington, Congress wanted to cut
taxes as much as possible in 2001 while containing the costs of doing so
as much as possible over the ensuing 10-year period.
In 2001, the Bush
Administration and Republican-controlled Congress understood that, as
2010 approached, today’s lawmakers would step in to prevent the
rollercoaster from taking off. That’s where we are now.
Despite what you hear,
the estate tax is not a monstrous burden on farms and small businesses.
Under current law, the first $3.5 million in value of an individual’s
estate (and $7 million of a couple’s estate) is exempt from tax. For
values exceeding those levels, estates pay taxes of up to 45 percent.
President Obama
proposes to keep things as they are, making today’s rules permanent. In
its budget blueprint (or “resolution”) for 2010, the House voted to go
along. The Senate, however, approved an amendment by Democrat Blanche
Lincoln of Arkansas and Jon Kyl of Arizona to its own resolution to
raise the exemption for couples to $10 million and cut the top tax rate
to 35 percent.
House and Senate
negotiators will iron out a final budget resolution for congressional
approval in the coming weeks. But even if, as expected, they discard the
Lincoln-Kyl amendment, that won’t be the last word. The two senators
will likely try to add it to any tax legislation Congress considers
later this year.
Listening to Lincoln
and Kyl, you might think they are fighting a valiant battle for fairness
for hard-pressed farms and small businesses, and for those who inherit
the fruits of their parents’ labor.
“This amendment
provides real relief to our family-owned businesses,” Lincoln said
during the Senate debate. In an April 4 letter to the Washington Post,
the two senators wrote of those who need further estate tax relief,
“Many have relatively low profit margins and are considered ‘wealthy’ by
the government only because they own expensive equipment or land.”
If only it were so. In
fact, says the Tax Policy Center, a project of the Urban Institute and
Brookings Institution, the overwhelming majority of farms and small
businesses are already exempt from estate taxes under current law.
More specifically, only
the estates of one out of every 400 people who die – that is, the top
0.25 percent – would benefit from the Kyl-Lincoln proposal. The other
99.75 percent of estates would pay no taxes under current law.
Nor is the further
relief that Lincoln-Kyl would provide for the wealthiest among us
cost-free. The amendment would cost nearly a hundred billion dollars
more over its first decade than Obama’s plan to extend the estate tax at
its current levels.
The estate tax battle
comes as Washington faces projections of huge future budget deficits
that, if not addressed by the president and Congress, will soon threaten
the nation’s long-term economic viability.
Lawmakers of both
parties have complained that Obama’s budget plan for 2010 does not do
nearly enough on that score. Among those complaining, ironically, are
some who voted for the Lincoln-Kyl giveaway.
The appropriate
question for policymakers is not whether to give another generous tax
break to the wealthiest among us. The question is whether, facing
deficits of the size that Washington projects, the president and
Congress should make permanent the generous estate tax cuts that it
enacted in 2001.
© 2009
North Star Writers Group. May not be republished without permission.
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