For the fourth time in five years, the Senate next week will attempt to repeal the estate tax, following the lead of the House of Representatives. Only 0.5% of the richest families in America pay estate taxes, yet well-orchestrated marketing campaigns and lobbying over the past 10 years have convinced about one-third of Americans that the “death tax” takes money away from ordinary middle and working class Americans.
Repealing the estate tax would benefit the heirs of less than 1% of those who die each year. Married couples with estates worth more than four million dollars are the only ones that currently have to pay, and the first four million dollars can be passed to heirs tax free. The Treasury Department would lose nearly one trillion dollars over 2012-2021. These costs include $776 billion in revenue loss and $213 billion in interest payments.
In order to cover this gap, the government will either plunge further into debt, limiting its ability to address the Social Security solvency gap and reducing the money available for public programs, or force the government to tap other tax sources, a monetary burden which would inevitable fall to middle class families. The revenue lost from repeal is significantly greater than the projected 75-year Social Security shortfall.
Senator Jon Kyl (R-AZ) is carrying water for the wealthiest Americans, proposing to permanently repeal the estate tax. He is now also offering a fool’s compromise which is nearly as regressive and as costly as full repeal. Admitting full repeal may not be politically feasible, Kyl is now proposing that the estate tax could be decreased by allowing $10 million per married couple to be passed tax free to heirs and to cut the tax rate on the remainder to just 15%. This would still cost the nation 80 to 84% the cost of full repeal, according to Center on Budget and Policy Priorities.
Now comes another compromise, an offer from Senator Max Baucus (D-MT), someone who should know better. Like Kyl’s, this proposal also benefits the richest estates at the expense of long-term fiscal sanity. According to reports in the CongressDaily, Baucus has a proposal that would cut the estate tax for the top three of every 1,000 estates relative to levels set for 2009. According to an analysis by the Tax Policy Center, the main elements of the reported Baucus proposal (which would allow heirs to receive $7 million tax free and includes a graduated rate structure that starts at just 15%) would cost the Treasury three-fourths as much as full repeal — and all of these benefits would go to those with estates greater than seven million dollars when compared with 2009 law.
These compromises are no compromises at all. Passing legislation that would decrease or repeal the estate tax would constitute one of the most regressive tax cuts in the history of the United States. It would shift a greater tax share onto middle and lower class Americans by massively cutting taxes for only the heirs of the wealthiest families. This violates core American values, including fairness and belief in meritocracy.
As Congress discusses the estate tax next week, we urge them to uphold the fundamental principles of America and ignore the deceptive 10-year lobbying efforts, led by 18 of the richest American families, for legislation that will only help the wealthiest at the expense of the rest of the nation. The majority of Americans understand the importance of this issue, as a recent poll by Penn, Schoen & Berland Associates makes clear.
The Center for American Progress has been out front and outspoken on this issue. Learn why the repeal or any reduction of the estate tax is bad for America.