Estate Tax Sham

Saturday, June 25, 2005

EXACTLY HOW MUCH should the super-rich be allowed to pass on to their kids tax-free? All of it -- or will a mere $8 million suffice? Incredible as it may seem when millions of lower-income Americans are losing their health insurance and appropriators are talking about cutting food stamps, that's the pressing societal question being debated behind the scenes in the Senate.

Currently, the estate tax is scheduled for complete elimination in 2010, only to be resurrected the following year in its full, 2001-era glory. No one expects full resurrection to happen, nor should it; the amount of estates shielded from taxation at that time, $1 million, is too low. But complete repeal is unjust, unnecessary and unaffordable; it would cost $745 billion over the first 10 years, $1 trillion if extra interest costs are included. Though the House has voted to make repeal permanent, proponents of that approach don't have the 60 votes necessary to close the deal in the Senate.

But estate tax foes are peddling a Trojan horse proposal that amounts to repeal in disguise. Skittish Democrats irrationally fearful of being tagged for supporting the "death tax" are considering going along. So are moderate Republicans who say they oppose repeal but are at risk of falling for a plan that would in effect achieve the same thing. The suggestion being pushed by Sen. Jon Kyl (R-Ariz.) would exempt the first $8 million of every estate -- $16 million per couple -- from taxation. That would leave a tiny fraction, about one-tenth of 1 percent of estates, subject to the tax.

Furthermore, Mr. Kyl is pushing for an unconscionably low tax rate on what sliver of estates remain subject to taxation. One idea is to not name a specific rate for the remaining assets but to peg it to the capital gains rate, now 15 percent. This would result in a minuscule effective tax rate, about 5 percent, given the huge chunk of the estate put off limits. In addition, the enemies of the estate tax advocate doing away with capital gains taxes entirely. If they get their way as part of a tax overhaul, voilĂ  -- no estate tax at all.

You'd think Democrats would not only see through this sham but be eager to pick up the fight. After all, the question is whether, at a time when the gap between rich and poor is widening, extraordinarily wealthy Americans ought to be asked to give back some of what they've been able to amass. But instead of seizing on the estate tax fight as a defining issue, Democrats have scared themselves into thinking that they'll be punished for standing up against repeal.

This is dumb politics and worse policy. Democrats should stop being so scared of the estate tax bogeyman. And centrist Republicans who claim to be concerned about mounting deficits can't reconcile those concerns with support for anything like the Kyl plan, which would drain almost as much revenue from the Treasury as doing away with the estate tax entirely. Those who say they don't support complete repeal shouldn't be fooled by the wolf-in-sheep's-clothing version.


© 2005 The Washington Post Company