Estate Tax Planning

Why do some Democrats object to taxing three of every 1,000?

NOW AND for some time to come, the country faces daunting fiscal challenges. The estate tax is not among them. Under current law, the tax is set to be eliminated in 2010; the next year, if a new law is not passed, the tax would spring back into full force, with estates worth more than $2 million per couple subject to a 55 percent tax. There is a reasonable argument for raising the exclusion; a million-dollar estate isn't what it used to be.

A proposal to be offered on the Senate floor today as part of the budget resolution contemplates just that. The plan, crafted by Senate Finance Committee Chairman Max Baucus (D-Mont.), would make permanent the estate tax levels now set for 2009: estates of up to $7 million per couple would be exempt from taxation; that amount would grow with inflation; and the rate would be 45 percent. At that level, only three of every 1,000 estates would be subject to the estate tax. That's not generous enough, though, for some senators. Arizona Republican Jon Kyl is expected to offer an amendment to raise the exemption to $10 million per couple and cut the top rate to 35 percent. This would cost more than three-quarters of the price of a full repeal. The total would be $250 billion more over 10 years than the Baucus plan -- with huge benefits flowing to the richest of the rich. The Urban Institute-Brookings Institution Tax Policy Center estimates that estates valued at more than $10 million per individual would enjoy an average tax cut of $1.8 million.

These are sadly skewed priorities, given the pressing demand to fund health care, education, defense and other needs. It is unconscionable to dig the deficit hole deeper in order to lavish even more tax cuts on the wealthiest Americans. Yet it may be that a majority of senators are prepared to do exactly that; two Democratic foes of the estate tax, Arkansas' Blanche Lambert Lincoln and Nebraska's Ben Nelson, are considering supporting the Kyl plan. Adopting the Kyl amendment as part of the budget resolution would not write the new estate tax levels into law. But it would put the Senate on record as endorsing an estate tax exemption of at least $10 million and would make it harder for the next president to craft a reasonable compromise. It's critical that fiscally responsible Republicans such as Maine's Olympia J. Snowe and Ohio's George V. Voinovich hold the line against this misguided amendment.