Unseemly Tax Cuts
President Bush on Wednesday afternoon will sign into law an extension of preferential tax treatment for capital gains and dividends through 2010, putting the welfare of the wealthy ahead of the livelihoods of ordinary Americans in an astonishing display of fiscal irresponsibility. Alas, the president and Congressional leaders may not yet be done.
On top of the $70 billion cost of today's tax cut over five years — when federal budget deficits are already topping $300 billion annually — comes plans to repeal the estate tax for the 0.3% of wealthy couples with estates worth more than $7 million (that would actually qualify to pay the estate tax by 2009). Full repeal of the estate tax for the super- rich would cost the Treasury Department $745 billion over the first 10 years of enactment, and including interest on the additional deficit, the cost is close to $1 trillion.
Put another way, 830 of the best-off estates in the country would split an estimated $14 billion in tax breaks each year, or $16 million per estate — a stunning example of just who benefits from the push to repeal the estate tax in its entirety. At a glance, here's who benefits from this proposed legislation:
- Less than 1% of estates will pay any estate taxes in 2006 under this year’s exemption, which allows married couples to leave $4 million tax-free to their heirs.
- A new report released by Public Citizen reveals that 18 of America's super-wealthy families, who stand to gain $71.6 billion if their bid succeeds, have been leading the estate tax repeal effort since 1998, putting nearly half a billion of their own money into lobbying efforts.
Alternative proposals from Senators Kyl and Grassley to increase the family exemption to $10 million and cut the tax rate to 15% aren't much better. Their proposal would:
- Cost 84% as much as repeal, or $652 billion over the first 10 years of enactment.
- Cost $412 billion more than "reasonable reform" over the first 10 years of enactment (compared with an exemption level of $5 million per couple with a 45% tax rate).
- Would dramatically lower the effective rate that estates actually pay. For instance, in 2011, the effective rate would plummet from 18-19% under current law, to 5-6%.
Neither full nor partial repeal of the estate tax is remotely fair, and it only benefits the most wealthy individuals. Nor is either proposal a sound fiscal decision, especially given the staggering budget deficits accumulated by the Bush administration. More of these kinds of tax cuts will do further harm — except to those who benefit from these changes to the tax code yet overwhelmingly need it the least.
We need not accept the conservative view of the economy and tax policy. Our nation deserves a modern, fair, and simple tax system that provides economic opportunity and a strong economy for all Americans.
For more analysis and opinion on the estate tax at The Center for American Progress, please see: