Bad Bargain

Tuesday, August 1, 2006

UNRELENTING in their zeal to cut taxes for the richest Americans and unabashed about employing the most cynical of maneuvers to achieve this goal, House Republicans left town this past weekend for their five-week August recess -- after shipping over to the Senate a noxious package that combines an increase in the minimum wage with an outrageous near-repeal of the estate tax and an extension of expiring tax breaks. The House GOP win-win political calculation here is obvious: Marrying a tax break for the rich with a wage hike for the poor dares senators in an election year to cast a vote against increasing the minimum wage. That, combined with some extra goodies, might be enough to get the estate tax cut over the 60-vote Senate hurdle that has so far, fortunately, blocked congressional action. If not, Republican leaders wager, they've at least given nervous House members cover to assert (however insincerely) that they backed a minimum wage increase, only to be stymied by Democrats.

But this is a bad bargain -- unaffordable, unnecessary and, as usual, dishonestly presented. Senators shouldn't be snookered, or intimidated, into going along with it.

Whatever the case for increasing the minimum wage -- and there are points pro and con on that subject -- it doesn't justify nearly eliminating the estate tax. The House measure would raise the minimum wage, which hasn't been increased since 1997, from $5.15 an hour to $7.25 by 2009. According to estimates by the Economic Policy Institute, which favors the change, 6.6 million workers would enjoy an average yearly wage increase of about $1,200. But even assuming that's correct -- and that employers facing higher costs wouldn't respond by cutting jobs -- the benefit pales in comparison with the riches the wealthy would reap by the cut in the estate tax. Assuming that the 2009 exemption of $7 million per couple would be otherwise left in place, according to the Brookings-Urban Institute Tax Policy Center, the estate tax cut would give an estimated 8,200 estates an average tax break of more than $1 million.

The estate tax cut is being peddled as a less-expensive version of one already passed by the House and rebuffed by the Senate. Senators: Don't buy the new model. It's just a gimmick-laden version of the old one. Backers of the cut, which would raise the size of estates free from any tax to $10 million per couple and lower the tax rate on estates under $25 million to the capital gains rate, now 15 percent, argue that it would cost a mere -- mere ! -- $268 billion between 2007 and 2016, $15 billion less than the previous incarnation.

This is misleading on numerous levels. Because the cuts wouldn't actually kick in until 2010, that 10-year estimate is deceptively low, under either the old or new versions. The cost over the long term would be far greater: at least three-quarters of the cost of eliminating the estate tax entirely. From 2012 through 2021, according to estimates by the liberal Center on Budget and Policy Priorities, the new House measure would cost $599 billion, or $753 billion if the cost of extra interest payments on the national debt was factored in. And that's a low-ball estimate, because the new measure employs the now-familiar gimmick of phasing in cuts to make costs appear lower; the full effect of the change wouldn't be felt until 2015.

If that's not enough, the House bill includes $38 billion to extend popular expiring tax breaks -- iced with goodies for the timber and mining industries. The $1 billion tax break for the timber industry is designed to entice Democratic senators Maria Cantwell and Patty Murray of Washington state. The mining provision, which has the dual political benefit of putting pressure on West Virginia's Democratic senators to back the package and bolstering endangered mining-state Republicans such as Rick Santorum (Pa.) and Conrad Burns (Mont.), would cost $4 billion over 10 years and shift more of the costs of mine cleanup and retiree health benefits from mining companies to taxpayers. It involves something called the Abandoned Mine Land Fund.

What really should be abandoned is this ugly and cynical legislative trifecta.

© 2006 The Washington Post Company