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First, fix the estate tax giveaway

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By Chris Van Hollen
Wednesday, December 15, 2010

Right now, Congress is debating the best way to address tax relief for American families - a critical question as our country continues to recover from the recession. House Democrats are committed to getting the best possible deal for taxpayers and ensuring that taxes on working families don't go up on Jan. 1. But we also don't think it's fiscally responsible or fair to provide a tax-cut bonanza to super-rich estates.

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Senate Republicans have made it clear they are willing to raise taxes this January on middle-class Americans unless they get tax breaks for millionaires and billionaires - despite the fact that a tax hike on the middle class could slow an already anemic economic recovery. Two weeks ago, in the face of overwhelming Republican opposition, the House passed legislation that would cut taxes for 98 percent of Americans while resetting rates for the top 2 percent to their levels under President Bill Clinton. Unfortunately, Democrats could not overcome Republican opposition in the Senate. We were at a stalemate.

House Democrats came to the negotiating table in December to find a way forward. Given the political constraints and an unemployment rate of 9.7 percent, much of the tax deal negotiated between the White House and Senate Republicans is defensible. When it comes to the estate tax, however, Republicans overplayed their hand - and won. Even Republican leaders are quietly amazed that they got the sweetened estate-tax provision that has been championed for years by Arizona Sen. Jon Kyl (R).

Absent congressional action, on Jan. 1 the tax rate will rise to 55 percent on estates valued at more than $1 million. The common-sense compromise would have left the exemptions at the 2009 levels of $3.5 million for individuals and $7 million for couples, and the rate at 45 percent. Those are the highest exemptions and lowest rates reached under the Bush plan until this year. The Kyl proposal, however, changes that exemption to cover the first $5 million for individuals and $10 million for couples, and sets a 35 percent rate on the remainder. In other words, for an additional $23 billion on our nation's credit card, the Kyl proposal provides an average tax break of more than $1.5 million to roughly 6,600 estates a year.

The Kyl estate tax provision will not help economic growth or jobs, and it was not even necessary to the core deal. It was added in exchange for extending certain tax credits that were included in the 2009 Recovery and Reinvestment Act, but it was fundamentally not a fair trade. The cost of the tax credits and the cost of what would have been the common-sense estate tax compromise are essentially the same - a fair and equal trade. But instead of striking that deal, the administration acceded to Kyl's long-standing quest to give a huge break to the top three-tenths of 1 percent of the nation's wealthiest estates.

Some pundits have portrayed opposition among congressional Democrats to the White House-Senate Republican tax deal as whining from partisans who refuse to come to grips with post-election realities and make necessary compromises. That is a convenient but inaccurate narrative. While some might reject any compromise, many Democrats can reluctantly stomach most of the difficult trade-offs the administration made. But this last-minute $23 billion giveaway made payable to the wealthiest estates in the country - which digs us deeper into debt without adding a single job - is simply a bad deal for the American people.

In recent days, the Senate has inserted into the tax deal important provisions on clean energy that Senate Republicans had originally rejected during the negotiations. Let's also fix the estate tax giveaway, which fails on job growth, fails on deficit reduction and fails on fairness in a time of economic crisis. Do we really want to borrow billions from China to give the wealthiest 6,600 estates a tax break averaging more than $1.5 million?

House Democrats think this trade-off should be debated and voted on in the light of day. With Washington Republicans sharpening their budget knives to cut spending on national priorities such as education, border security and public safety, it is hard to believe they think it's wise to give a windfall to heirs such as Paris Hilton. Let's find out if Republicans really want to jeopardize income tax, payroll tax and estate tax relief for every American in order to provide a budget-busting bonanza to the country's richest estates.

The writer, a representative from Maryland's 8th District, will be the ranking Democrat on the House Budget Committee in the next Congress.


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