Decision Looms for ‘Death Tax’
I know youre eager to return to those thrilling days of yesteryear the Bush presidency and theres a pressing matter from that era on the national agenda: what to do about the estate tax. We have until New Years Day to settle this question, a small window on our values as a country. The background: on the charge that the death tax was a punishing money grab from small businessmen and women coming while they grieved a lost loved one, no less opponents in 2001 succeeded in increasing the exemption; the tax currently kicks in on inheritances above $3.5 million rather than the old taxs $1 million. The maximum tax rate, then 55%, was dropped to 45%.
When the Times Square ball rings in 2010, the tax will vanish altogether. Your ticket to the great beyond is tax-free next year. But not if you survive into 2011: because of deficit concerns, opponents had to agree that the tax would return that year, with a rate and exemption at their 2001 levels. This fiscal sleight-of-hand, disdained by all sides, has produced a yuletide debate. Should we repeal next years repeal to contain federal red ink, and if so, what should the rate and exemption be? Or do we just kill the tax permanently, as opponents have always urged? President Obama proposes threading the needle by keeping the tax next year but making permanent its current lowered rate and higher exemption. Boston College law professor Ray D. Madoff counters that that would cost the Treasury more in the coming decade than doing nothing. She proposes shielding family businesses under $10 million from the tax but preserving it at some level otherwise.
Both points are spot-on. The case against the death tax (opponents term) has always been daffy. Aug. 24, 2000 has passed into political lore as the day that Montana rancher Lynn Cornwell hopped atop a tractor to deliver a repeal plea to President Clinton at the White House. That same day, then-Republican House Speaker Dennis Hastert declared that the tax is so steep that sometimes the deceased owners children must break up a farm or sell a business just to cover the tax. But the tractor drive was a stunt. Far from being a victim of the tax mans greed, Cornwell has benefited from taxpayer largesse. In the years after his ride, he pocketed $400,000 in federal farm subsidies and fed his herd on federal land at below-market rates, according to William H. Gates Sr. and Chuck Collins, two well-off men who wrote a book supporting retention of the tax.
And Hasterts point? You could fertilize Montana with what the speaker was shoveling. In 2001, the New York Times asked the American Farm Bureau Federation, a repeal advocate, for examples of families that had to give up their farms because they couldnt afford the estate tax. The federation found exactly zero victims. Five years later, the Times reported that just 50,000 families will be subject to the tax in 2011. Theyre in a tax bracket that means theyll be able to pay the IRS without having to miss the mortgage payment, turn off the electricity, or eat cat food.
Wont killing the tax help during a recession? Tax cuts for average people who need to spend their money on necessities would indeed be smart in a downturn. But with the estate tax, were talking about the wealthiest Americans, people more likely to save their windfall, not spend it. As for arguments that the tax smothers job growth, President Clinton left the tax alone during the 1990s. Job growth sure was slumming it then, wasnt it? Keeping taxes low and simple is sound policy. It is perfectly compatible with an estate tax.
Many of the same politicians who oppose the tax bray out of the other side of their mouths about swelling deficits. Meanwhile, a writer for the Weekly Standard made the conservative case for the tax: success in America should come from hard work and talent, not from being one of the undeserving winners of the sperm lottery.
Rich Barlow is a freelance writer in Cambridge.