The 1% Split Over Estate Taxes
Friday, August 12, 2005
The very rich and the merely rich are fighting over the fate of the estate tax.
So far, the very rich are winning.
Small-business owners -- the merely rich -- want to exempt from taxation inheritances of up to $10 million. The very rich -- people whose estates are worth tens of millions or even billions of dollars -- want instead to reduce the tax rate on assets passed on at death. A $10 million exemption isn't nearly enough for them.
To the pleasure of the very rich, the leading compromise in the Senate would drastically lower the top rate on inherited assets -- to 15 percent from 47 percent. But, to the chagrin of the merely rich, the exemption wouldn't come close to their demands.
Small businesses are irate. "We don't think that a compromise that leaves small business at the starting gate and takes care of the rich guys is a good thing," said Donald A. Danner, executive vice president of the National Federation of Independent Business, which represents small-business owners. "Our members would be very upset."
This elite conflict has serious implications for average citizens as well: a sharp reduction in the estate tax would deprive the federal government of tens of billions of tax dollars each year. "Wealthy people will get tax cuts they don't need at the expense of important public services like food stamps and health care," said Matthew W. Gardner of the Institute on Taxation and Economic Policy, a liberal research group.
Only a small number of people would benefit directly from a change. Of the 2.4 million adults who died in 2003, just 28,600 left estates that were liable for any tax, according to the nonpartisan Tax Policy Center. In other words, the levy fell on the richest 1.2 percent of Americans with the highest taxable estates.
Still, thanks to lobbying by the heirs of Wal-Mart stores, Mars candies and Campbell soup, the tax is close to becoming extinct. For nearly two decades, clusters of extremely wealthy people have campaigned to get rid of the tax on inheritances. NFIB, a Republican stalwart, joined the effort in the mid-1990s, bringing with it numerous small-business and farm groups.
Pressure from those powerful groups helped persuade President Bush to call for a repeal during his campaign in 2000. But budgetary constraints allowed him only a partial victory the next year. Bush signed into law a bill that eliminated the tax for one year only -- 2010. It will pop back to life in 2011 unless Congress acts to change it.
Hence the debate. The House voted in April to abolish the tax permanently. The Senate is scheduled to take up the matter during the week of Sept. 5.
Senators and lobbyists agree there aren't enough votes for complete repeal because of how much it would cost (about $75 billion a year between 2014 and 2024) and because of procedural obstacles that Democratic opponents are expected to erect. That has spurred negotiations to find a less expensive compromise.