Maybe congressional Republicans really are nuts, suicidal or both. The latest evidence is House approval of legislation abolishing the estate tax, sometimes called the “death tax.” The chances of this soon becoming law are slim, because even if it passes the Senate, congressional Republicans probably won’t be able to override President Obama’s promised veto. Meanwhile, they’ve handed Democrats a priceless campaign gift: a made-for-TV (and Internet) video depicting Republicans as lackeys of the rich.
It’s not as if Republicans aren’t used to being stigmatized as shills for the wealthy. But why (one might ask) would they go out of their way to confirm the stereotype? With economic inequality a major issue, why strive to be portrayed as stooges for hedge-fund operators, well-paid executives, affluent celebrities and wealthy families? All would benefit if the estate tax were repealed.
With the country’s many problems, eliminating the tax hardly seems a top priority. It affects almost no one. In 2013, 2,596,993 Americans died, but there were only 4,687 taxable estate returns filed, reports the Congressional Joint Committee on Taxation. That’s 0.18 percent of deaths. The number is so low because much wealth is exempted from the tax. In 2015, the exemption is $5.43 million for individuals and $10.86 million for married couples. Above those amounts, the top tax rate is 40 percent.
You have to do exceptionally well to be touched by the estate tax. Not surprisingly, the tax provides only a tiny share of federal revenues, recently less than 1 percent. That’s about $20 billion annually, trending upward. Even so, the projected total for the next decade (2015-2024) is nearly $250 billion, says the Joint Committee. This exposes Republicans to a second line of attack: that they care more about the rich than about budget deficits.
Perhaps Republicans can refute these critiques. The most common defense is that the estate tax threatens family-owned firms, farms and ranches. To pay the tax, survivors have to sell part or all of their businesses. “America was built on small, family-owned businesses,” says a blog post from Republicans on the House Ways and Means Committee. “Our tax code shouldn’t punish them.”
Glenn Kessler, The Post’s evenhanded and exhaustive “Fact Checker,” examined this charge and found that — in practice — “relatively few small farms or businesses appear to be affected.” Many are protected by the generous exemption amounts. The estate-tax threat causes more worry than disruption, he concluded.
A second rebuttal is that the estate tax weakens investment and economic growth. “The estate tax is a tax on capital,” writes Harvard economist Greg Mankiw, who served in the administration of President George W. Bush, in a blog post. Repealing the estate tax “would stimulate growth and raise incomes for everyone.” If so, the effect would be minuscule. An economic simulation by analysts at the conservative Heritage Foundation estimated that eliminating the estate tax would create 18,000 private-sector jobs and increase spending by $46 billion over 10 years. Even accepting these figures at face value, they are rounding errors in a $17 trillion economy with 148 million workers.
The truth is that the estate tax has become a political ping-pong ball, whose symbolism — for liberals and conservatives — dwarfs its economic significance.
Liberals want to redistribute wealth aggressively by lowering exemptions and raising rates. These ambitions face obstacles. It’s doubtful the tax would be extended downward to where it would affect sizable numbers of Americans, including many small-business owners. Americans dislike government tampering with parents’ desire to leave something for their children. This may help explain why, in many opinion surveys, majorities would reduce or end the estate tax, even though they don’t pay it directly.
As for higher rates on the super-rich, they can be legislated — and frustrated. Rather than pay steeper taxes, many of the mega-wealthy would divert their fortunes into charity: foundations, university buildings, research laboratories. This already occurs.
For their part, conservatives’ case for ending the estate tax runs afoul of Americans’ distaste for hereditary aristocracy. Economic success should be earned, not bestowed. Huge intergenerational wealth transfers violate that principle. Today’s estate tax is a confusing compromise of conflicting impulses, between parents’ solicitude for children and a suspicion of passed-down wealth.
Congressional Republicans would have been wiser to let well enough alone — to accept the contradictions as reflecting messy reality. Instead, they’re given to these pious gestures, which mistake narrow self-interest for broad principle.
A party working to reduce the taxes of the rich while cutting food stamps for the poor invites a public relations nightmare. It ensures partisan scorn. When Democrats oblige, Republicans may ask who pushed them into this trap. The answer: No one did. They weren’t pushed; they jumped.
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