Senate Plans Benefit Increase for the Very Rich

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?

3 Responses to Senate Plans Benefit Increase for the Very Rich

  1. Wendy says:

    Robin Hood, er, Kathryn,

    Letting people keep more of their money is not a “give away.” Let’s not forget whose money it is to begin with..

    A few examples of a “give away” are the:
    1.) earned income tax credit
    2.) making work pay credit.

    Well, here’s to hoping that you can increase the estate tax to 100%, so that all family businesses go under, and the kids getting hit with the “inheritance tax” (as liberals like you call it) never invest in companies or small businesses again so no more jobs are created. Oh sure, they can pay it out over 14 years, or fire half their work force, sell some of their land to comply with this unfair tax. Just because many businesses can pay the tax doesn’t make it fair. In fact, it further disadvantages businesses when their bank accounts are virtually liquidated to pay 35%-55% of their company’s value. It’s evident you maybe took only micro or macro economics 30+ years ago in college. English literature? Really? Did your Ph.D program have some good econ courses, too?

    That’s a great example of how you keep people impoverished. Kill job creation.

    Why don’t we tax the impoverished on the value of their estates if this tax is so fair?

    Oh, I forgot. We’re approaching a point where the poor don’t pay taxes anymore. (http://www.taxfoundation.org/research/show/542.html)

    44 years ago, when you were younger, Lyndon Johnson declared a war on poverty. How in God’s name are all of these people still poor when a third of all tax filers owe nothing? Let’s not forget that the top 1% (with 388K AGI) pay nearly 40 percent of all income taxes. How much more would you like them to pay? 70%? Where does it end for liberals? I’d be interested to know.

    Go ask some of your McDonald’s franchisees how much they LOVE the estate tax. I’m sure that these small business owners would love have their children put their company’s expansion off for, say, 14 years, while they pay uncle sam.

    Oh, I enjoyed your justification of the estate tax to pay for state services. Really, I did.

  2. kathrynbaer says:

    First, a clarification is in order. I am not a McDonald’s employee and most certainly do not speak for the corporation on this blog.

    For the rest, we clearly have different views on the role of government. Like most Americans, I believe our government should include programs and services that allow everyone in this country to enjoy a decent quality of life and opportunities to realize “the American dream.” I also recognize that I and others who are reasonably well off owe a lot to government programs. So do businesses of all sizes.

    These programs cost money, and the source of the money is taxes. So the question is how tax burdens should be distributed. I believe that our tax system should be progressive—people and entities, including estates, that have more should pay more. Among other things, we wouldn’t have what we have without government programs. You apparently believe otherwise.

    However, let’s not confuse the issue with misleading facts. The current estate tax is not destroying family businesses. Not even a $100 million estate owes 55% of its total value in estate taxes.

    Nor, to my knowledge, did anyone assert that designing a tax system so that the lowest-earning individuals would not owe any income taxes would lift these individuals out of poverty. Note too that these individuals do pay taxes—payroll taxes, sales taxes, the taxes passed on in their utility bills and possibly others.

    You don’t need advanced courses in economics to know these things. You just need to be able to read and understand what economists write. That’s why we have public schools, public institutions of higher education and some government sources of financial assistance—all of them funded by taxes.

  3. […] Senators Jon Kyl (R-AZ) and Blanche Lincoln (D-AR) are again (or still) pushing for an even bigger tax break. Their proposal would lower the top rate to 35% and exempt the first $5 million per individual and […]

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