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Estate Tax Lunacy

By Harold Meyerson
Wednesday, May 31, 2006

Spring has given way to summer's full-furnace heat in Washington, apparently taking with it any scintilla of sense that Congress may yet possess.

In the House, Republicans who could not even raise an eyebrow at reports that the National Security Agency has been conducting warrantless wiretaps of Americans became instant civil libertarians when the FBI conducted a search of a congressman's office.

The Senate, meanwhile, is scheduled next week to take up legislation by Arizona Republican Jon Kyl that would permanently repeal the estate tax on the wealthiest Americans. If enacted, Kyl's bill would plunge the government another trillion dollars into the red during the first decade (2011-2021) that it would be in effect.

Behind the scenes, the action has been on the Democratic side in the Senate, as the party's leadership has sought to dissuade Montana's Max Baucus, ranking Democrat on the Finance Committee, from forging a halfway-house compromise with Kyl that would deplete revenue by only $500 billion to $600 billion during that decade. The Republicans would need Baucus to bring roughly a half-dozen Democrats along with him to reach the magic number of 60 votes required to overcome any filibuster that the vast majority of Democrats would mount to block any such measure.

Even a paltry $500 billion, of course, is a lot of money to drain from public coffers just when boomers are going onto Social Security and Medicare and the number of employers providing health insurance, if present trends continue, might have dropped to a virtuous handful. To cover those and other needs, Congress will either plunge us deeper into debt or increase some other levies -- payroll taxes, say -- that will come out of the pockets of the 99 percent of Americans whom the estate tax doesn't touch.

A decades-long campaign by right-wing activists (brilliantly documented by Yale professors Michael Graetz and Ian Shapiro in their book "Death by a Thousand Cuts") has convinced many Americans that the estate tax poses a threat to countless hardworking families. That was always nonsense, and under the estate tax revisions that almost all Democrats support -- raising the threshold for eligibility to $3.5 million for an individual and $7 million for a couple -- it becomes more nonsensical still. Under the $3.5 million exemption, the number of family-owned small businesses required to pay any taxes in the year 2000 would have been just 94, according to a study by the Congressional Budget Office. The number of family farms that would have had to sell any assets to pay that tax would have been 13.

On the other hand, an estate tax repeal would save the estate of Vice President Cheney between $13 million and $61 million, according to the publicly available data on his net worth. It would save the estate of Defense Secretary Donald Rumsfeld between $32 million and $101 million. The estate of retired Exxon Mobil chairman Lee Raymond would pocket a cozy $164 million. As for the late Sam Walton's kids, whose company already makes taxpayers foot the bill for the medical expenses of thousands of its employees, the cost to the government for not taxing their estates would run into the multiple billions.

The Baucus split-the-difference measure wouldn't repeal the estate tax, but it would still cut the tax rates on the estates of the super-rich by 15 percent. The Montana senator spent much of last week trying to line up a handful of his Senate Democratic colleagues to support his proposal, in the hope of being able to announce an unshakable 60 votes favoring this folly when the debate begins next week.

Why any Democrat would back such a measure, however, is a deep mystery. From the policy standpoint, it would make it vastly more difficult both to shore up programs that Democrats believe need shoring up -- better educating the nation's children, for one -- and to get the nation's fiscal house in order. Politically, backing the measure is even wackier. The Democrats are running this year as the party of comparative fiscal sanity and greater economic equity and security. Baucus's compromise would undermine all those premises. Republicans might very well attack Democratic senators up for reelection this year for failing to repeal this hideous death tax, as they call it, but any Democratic senator who can't rebut that charge in what is shaping up as a very Democratic year should probably be in another line of work.

Last Friday Baucus's staffers assured the Democratic Senate leadership's staff that their boss would back off his compromise campaign. Still, given Baucus's penchant for mischief (it was largely he who rounded up enough Democratic votes to enact Medicare Part D and its Big Pharma giveaway), those assurances have met with some skepticism on Capitol Hill. The Democrats' capacity to undermine themselves has not vanished with the final days of spring.

meyersonh@washpost.com

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