A Senate Effort to Reduce the Estate Tax Should Be Defeated
AT A TIME of soaring deficits and growing needs, the Senate is weighing whether the wealthiest of wealthy Americans should get a tax break worth some $250 billion over 10 years. The Senate today could take up an amendment to the budget resolution proposed by Sens. Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) that would shield the first $10 million of estates from taxation and lower to 35 percent the tax on amounts beyond that. This would have been outrageous even before the current economic and fiscal mess. Now it is outrageous and nonsensical. Senators should not be fooled by estimates that understate the true cost of this tax cut or promises that it will be paid for somehow. Any senator considering voting for this amendment should ask him or herself: Even if that were true, aren't there better uses of hundreds of billions of dollars than reducing taxes even further for the tiny sliver of Americans subject to the estate tax?
Under the "throw Mama from the train" design of the Bush tax cuts, the estate tax is scheduled to disappear in 2010, only to be resurrected the following year at its 2001 level, when it applied only to estates worth over $2 million per couple at a rate of 55 percent. In fact, no one expects it to return to that level -- although letting it do so would be a far more rational response to the current crisis than the Lincoln-Kyl approach. Rather, President Obama has proposed holding the tax at this year's level: an exemption of $7 million per couple, with a 45 percent rate for amounts beyond that; this would cost $484 billion over 10 years. Senate Finance Committee Chairman Max Baucus (D-Mont.) has endorsed this solution, with indexing for inflation. This would hardly be punitive. At that level, 99.76 percent of estates would incur no tax whatsoever. Those who owe would pay, on average, $2.25 million less than they would have paid at the 2001 exemption level. Why in the world should these folks get more of a tax cut?
The hypocrisy here is breathtaking. Reducing the estate tax would harm charities because it eliminates some of the incentive for making charitable bequests -- yet some of the very senators who back estate tax cuts were quick to denounce Obama administration tax proposals that they argued would hurt charitable giving. More fundamentally, it is hard to stomach those who argue for more tax cuts -- and then bemoan the failure to stanch rising deficits. A vote for this amendment, at this time of so much red ink and so much suffering, would reflect the most skewed of priorities.