Here we are in the midst of the worst economic downturn since the Great Depression. The New York Times reports more distressing stories about state cutbacks in life-saving social services. And we know they’re only the tip of the iceberg.
Meanwhile, the unemployment rate continues to rise. It reached 8.5% in March. That’s 13.2 million people unemployed and looking for work. Another 85,000 had looked and given up because they believe it’s futile.
So what should the federal government do? The Senate has decided that part of the answer is to make changes in the estate tax so that the very wealthiest individuals can pass on more of their assets to their heirs.
According to the Tax Policy Center, this initiative would give a further tax break to the wealthiest 0.25% of estates. If the current exemption is extended, as the President’s budget proposes, the other 99.75% would owe no tax at all.
The Center on Budget and Policy Priorities estimates the cost of this benefit for the very rich at $91 billion during the first 10 years. This is on top of the cost that will be incurred under the President’s proposal.
The so-called “death tax” reform enacted during the Bush administration was one of the bigger bills of goods sold to the American public. We heard then about all the small businesses and family farms that had to be liquidated to pay the tax. We’re hearing about them again.
For example, Senator Jon Kyl, co-sponsor of the Senate’s estate tax give-away tells us that small business owners can’t afford to pay an attorney or an accountant for estate planning services (or, I guess, insurance). Thus, he says, they’ll have to pay “more than half the value of their businesses to the government when they die.”
This is good political rhetoric but very bad economics. The Congressional Budget Office crunched the numbers a couple of years ago. It concluded that virtually all of the very few farms and small businesses that would owe any tax under the current exemption had enough in bank accounts, investments and other liquid assets to pay it. The rest could extend payments over 14 years.
The bottom line is that expansion of the already-generous estate tax exemption would pave the way for even greater long-term deficits. And when the day of reckoning comes, what programs will be most vulnerable to cutbacks? We have enough experience to know the answer.
Or look at it another way. What would $91 billion mean to people who don’t have enough for food, housing, health care or services that would enable them to live safely in their homes?