Untitled Document
Conservatives are again trying to bury the estate tax. It doesn't have
to be that way.
As early as next month, some Democrats seem ready to go along with most Republicans
and implement a permanent repeal to the estate tax, a change that would reward
the wealthy and drag down the economy by increasing the deficit. But it doesn’t
have to be this way.
The estate tax represents a profoundly American idea: Although parents
should be able to pass on wealth to their children, great concentrations of
personal wealth should not grow unchecked from generation to generation. As
Franklin Delano Roosevelt put it, “Inherited economic power is as inconsistent
with the ideals of this generation as inherited political power was inconsistent
with the ideals of the generation which established our government.”
Today, only about the wealthiest 1 percent of those who die in a given
year pay the estate tax. With estate planning, married couples can leave at
least $3 million to their children completely tax-free.
In 2001, President Bush’s first tax bill phased out the estate tax by
2010, but because the tax changes expire after that year, the tax returns in
2011. Now, the president, Senator Jon Kyl, and other members of Congress are
pushing to make the phaseout permanent. That would eventually cost about $75
billion per year, and another $23 billion a year in interest expenses.
Many advocates for eliminating the estate tax use deceptive data. A prime example
is the American Family Business Institute (AFBI), which, according to its Web
site, is “devoted to the singular goal of the permanent repeal of the
Federal Estate Tax.” The AFBI recently ran an ad in Montana stating, “When
you die, the IRS can bury your family in crippling tax bills,” and claims,
“It can cost them everything.” But the average estate-tax rate for
the handful of people actually paying in 1999 and 2000 (when the tax was higher)
was just 13 percent. By 2009, only 25 people would have to pay the estate tax
each year in Montana. The ad mentioned none of that.
Many Washington political pundits say the estate tax is a losing issue with
voters, especially in red states with lots of farmers.
But the truth is that Americans support reforming the estate tax, not repealing
it. When given the choice between reform and repeal, a majority chooses reform
by 59 percent to 29 percent, according to a July poll by Penn, Schoen &
Berland Associates. And that margin holds even though many middle-income families
believe, thanks to misleading ads, that they’ll pay the estate tax when
they die. When the costs of repeal are made clear -- budget cuts, higher taxes
for everyone else, or bigger deficits -- and the benefits of reform are emphasized,
support for repeal drops to 22 percent. Even among farm and business owners,
support for repeal is less than a third.
Most Senate Democrats and some Republicans have balked at full repeal. And
so, aiming for a compromise, a working group of Democratic senators and their
staffs have been looking at reform options from a practical perspective.
Meanwhile, Senator Kyl has suggested a “compromise” setting the
estate-tax rate equal to the capital-gains rate, which (thanks to President
Bush’s 2003 tax cut) is currently just 15 percent. Some proposals would
set the tax-free exemption to $8 million, or at best $3.5 million. Either way,
the cost of this “reform” is enormous -- a $3.5 million, 15-percent
reform would spend about 80 percent as much as full repeal. That’s nearly
$60 billion a year in tax cuts for multimillionaires.
Consider what we could do with even a small portion of the $60 billion that
a bad “reform” would cost:
**Prevent the proposed $10 billion in
cuts to Medicaid included in the 2005 budget;
**Replace the Army’s 10,000 Humvees that rely on improvised shielding
with armored vehicles;
**Offer help with job search and retraining, similar to the Trade Adjustment
Assistance program, to all unemployed workers;
**Offer progressive saving incentives of $500 per year, on top of Social Security,
to 50 million families.
In fact, we could do all of the above for less than a bad reform. If Democrats
and Republican moderates can stand against full repeal, they also need to stand
against a bad compromise.
The president and some members of Congress are pressing for estate-tax repeal
at the moment the president’s tax reform commission announces its proposals.
Over the last four years, Congress has been doing the real work of this administration’s
tax “reform” agenda: eliminating taxes on wealth and shifting the
tax burden onto ordinary wages. The repeal of the estate tax is the perfect
embodiment of that idea -- before the commission says a word.
All Americans, including the wealthiest, deserve some certainty as they engage
in estate planning. Farmers and small businesses should continue to be protected,
and there is room to improve and simplify some of the special provisions that
are already aimed at these groups. And the vast majority of Americans should
continue to pay no estate tax at all. But these goals can and should be accomplished
without losing $60 billion in annual revenue our country needs.