Sunday, May 30, 2010

GOP Gives Wealthy One Year Estate Tax Windfall

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For a handful of the very richest Americans, 2010 will be an excellent year to die. Thanks to Republican obstructionism on their behalf, the estate tax, which in 2009 will impact only 1 in 500 estates while generating tens of billion in revenue, will temporarily expire after December 31. Adding insult to injury, while the fortunate heirs of the largest fortunes toast their good fortune in 2010, their less well off counterparts may face higher tax bills even as they grieve.
This latest GOP gluttony is the abominable outcome of the perpetual Republican war on the so-called "death tax." The Bush tax cuts passed in 2001 raised the estate tax threshold from $1 million to $3.5 million ($7 million for a couple), while slashing the rate from 55% to 45%. But facing the "sunset" provision that would eliminate the estate tax for one year in 2010 before returning to the pre-2001 levels the following year, the House voted 225-200 two weeks ago for an extension to maintain the current 45% rate.

But in the Senate, the same Republican born-again deficit virgins are intent on draining the U.S. Treasury in order to protect the 0.2% of Americans at the expense of the other 99.8%.

On December 4th, John Kyl (R-AZ), the number two Senate Republican, boasted there was no way Democrats could pass an estate tax extension before the end of the year, leaving them in for a "rude shock" next year when the levy disappears. Objecting to the extension proposed by Democrat Max Baucus yesterday to avoid the looming chaos and confusion, Kyl insisted:

"It's a problem that doesn't have to exist if they'll just leave the existing law alone and let the rate go to zero, which is where everyone wants it to be."
Restating the same GOP "death tax" fraud which dates back the 1990's and the election of George W. Bush, Senate Minority Leader Mitch McConnell declared:

"It's nothing that outrages the American people more than the thought that they will have to visit both the IRS and the undertaker on the same day."
This Republican scam over the so-called "death tax" is as bogus now as it was when President Bush first perpetrated it eight years ago. The House GOP budget, fittingly unveiled by Rep. Paul Ryan on April Fool's Day, would eliminate the estate tax altogether. While Nevada Senator John Ensign recently griped, "It destroys a lot of small businesses and a lot of family farms and ranches in America," House Minority Leader John Boehner (R-OH) groused:

"People who aren't wealthy, who may have built up value in land over generations and many family farms find themselves in situations where they've got to sell the farm in order the pay the taxes."
But as the Washington Post explained, under the extension proposed President Obama and echoed by Senator Baucus this week, 99.76% of estates would pay no taxes whatsoever:

The estate tax is scheduled to disappear in 2010, only to be resurrected the following year at its 2001 level, when it applied only to estates worth over $2 million per couple at a rate of 55 percent. In fact, no one expects it to return to that level -- although letting it do so would be a far more rational response to the current crisis than the Lincoln-Kyl approach. Rather, President Obama has proposed holding the tax at this year's level: an exemption of $7 million per couple, with a 45 percent rate for amounts beyond that; this would cost $484 billion over 10 years. Senate Finance Committee Chairman Max Baucus (D-Mont.) has endorsed this solution, with indexing for inflation. This would hardly be punitive. At that level, 99.76 percent of estates would incur no tax whatsoever. Those who owe would pay, on average, $2.25 million less than they would have paid at the 2001 exemption level. Why in the world should these folks get more of a tax cut?
Why? Because even in a time of national economic calamity, the Republican Party remains committed to dramatically shifting the tax burden away from the wealthiest Americans. (And unfortunately, Blanche Lincoln (D-AR) and nine other Democrats are aiding and abetting that transfer by supporting a lower tax rate of 35% for estates starting at $10 million per couple. The price tag? $250 billion.)

In April, the Tax Policy Center quantified just how few family farms or small businesses are actually impacted by the estate tax proposals under consideration:

We estimate that under the Obama proposal, 100 family farms and businesses would owe tax. (We define such estates as those where farm or business assets are valued at under $5 million and comprise the majority of estate assets.) The Lincoln-Kyl proposal would cut the number to 40. Even under current law, fewer than 2,700 family farms and businesses would owe tax.
But for the Republican Party, the wants of the few outweigh the needs of the many.

In a final twist of the knife, the GOP's push for the 2010 windfall for the wealthiest Americans could produce confusion and higher tax bills for those inheriting less valuable estates. As the New York Times described the scenario:

There is yet another wrinkle. When they scheduled the demise of the estate tax for 2009, the authors of the 2001 tax measure replaced it with a capital gains tax of 15 percent on inherited property that is later sold.
The threshold for being subject to those taxes is set lower, with the first $1.3 million in capital gains exempted for general heirs and $3 million for spouses. Democrats argue that thousands of estates that would not have been subject to taxes under the current law could get hit in 2010 even as those at the higher end of inheritance scale escape the 45 percent tax bite.

In response, John Kyl crowed, "As between paying 45 percent and 15 percent, I think it is pretty clear what most small business folks and farmers would like to do." And by "most small business folks and farmers," he apparently meant 2,700 of them.

With the GOP having for now apparently succeeded in blocking the estate tax extension, Americans can only watch as the Treasury is emptied further by the richest of the rich in 2010. Meanwhile, for the next 12 months, those gilded few should fear not the federal government, but instead their own sons and daughters.

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