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Editorial

The Rich Get Richer

Tuesday, April 12, 2005; Page A20

WITH MEDICAID and food stamps on the chopping block, the House of Representatives is about to vote for a $290 billion tax break for the richest sliver of Americans. The subject is, once again, the estate tax. Under the convoluted, dishonest plan Congress approved in 2001, the estate tax was to be gradually reduced and eliminated by 2010, only to spring back the following year to its 2001 level: a tax of 55 percent on estates of $1 million or more. Tomorrow the House is set to vote to keep full repeal in place after 2010.

This is unnecessary, irrational and unaffordable. Those who inveigh against the "death tax" point to the travails of family farmers and other small-business owners whose heirs are supposedly forced to liquidate enterprises to pay the tax bill. In fact, even if the estate tax were to revert in 2011 to its 2001 level -- and no one believes that the exemption will remain at $1 million -- it would affect the estates of only 2 percent of those expected to die that year. At $3.5 million (and $7 million for a couple) -- the level proposed in a Democratic alternative sponsored by Rep. Earl Pomeroy (N.D.) -- a mere three-tenths of 1 percent of estates would be covered. In other words, no one but the richest Americans would be asked to pay estate tax.


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Moreover, an analysis by the Urban Institute-Brookings Institution Tax Policy Center supports the contention that the family forced to sell its farm to pay the tax is, if not a fiction, close to it. Looking at situations in which farm and business assets represent most of the estate, the Tax Policy Center found that there would be just 50 affected in 2011 in the entire country if the exemption were set at $3.5 million.

The true cost of repeal is far higher than $290 billion, an amount that covers only the first few years of making repeal permanent. The bill for a full 10 years without estate tax would be $745 billion -- close to $1 trillion if you throw in increased interest payments. In contrast, raising the exemption level to $3.5 million and setting the tax rate at 47 percent would cost less than a third of that; $21 billion in 2015 compared to $71 billion for full repeal. The effective rate would be far less than 47 percent, because the tax is levied only on the amount above the exemption and state payments and charitable bequests also reduce the tab.

The estate tax is a tough vote for some lawmakers in part because of the enormous amount of misinformation surrounding it. House members who fear that a vote for the more responsible Pomeroy alternative will be used against them should ask themselves two questions: Will my constituents really punish me for a vote to exempt 99.7 percent of estates from taxation? And how can I justify adding to the deficit, or cutting other programs, to underwrite a costly tax break for the extremely rich?


© 2005 The Washington Post Company