“Death Tax” Dead, But Not For Long

July 19, 2010

Back in 2001, New York Times columnist Paul Krugman suggested that the Bush tax cut package should perhaps have been called the Throw Momma From the Train Act because it phased out the estate tax, ending with a total repeal this year.

But only for this year. If your multi-millionaire mom dies before New Year’s Day, you’ll inherit everything she left you tax-free, unless you live in the District of Columbia or one of the 18 states that collects an estate or inheritance tax applicable to descendants.

If you wait till next year to throw her from the train, you’ll owe the fed a top 55% tax rate on the total value of her estate over $1 million — assuming that Congress lets the Bush tax cuts expire.

But it won’t. So no reason to take your momma on a train ride.

Deficit hawks may choke at the budgetary impacts of extending unemployment benefits, COBRA health insurance subsidies and the higher federal match on state Medicaid costs. But I doubt they’ll grab the chance to add billions a year to the federal treasury by letting the estate tax revert to its pre-Bush level.

Nor apparently will more moderate factions in Congress. The starting point for the debate seems to be President Obama’s proposal to make the 2009 stage of the phase-out permanent. This would essentially give a lot of potential revenues to the heirs of quite wealthy people.

Specifically, the first $3.5 million of an estate left by an individual and the first $7 million left by a couple would be exempt from the tax. Assets above these amounts would be taxable up to a top rate of 45%. The Tax Policy Center says these rules would reduce federal revenues by $234 billion over the first 10 years.

I’ve asked myself why Obama would embrace such a large tax giveaway. Sure, he promised not to raise taxes on the middle class. But people with $3.5 million in assets aren’t, to my mind, middle class folks.

Perhaps he figured he’d got enough fights on his hands — health care reform, reform of the financial system, meaningful climate change legislation, etc. But it won’t be easy to get the 2009 estate tax reinstated.

Senator Jon Kyl (R-AZ) plans again to push for the bigger tax giveaway that he and Senate Blanche Lincoln (D-AZ) proposed last year. They want to raise the exemptions to $5 million for an individual and $10 million for a couple, while also dropping the top tax rate to 35%.

Senator Charles Grassley (R-IA) is all for this “bipartisan compromise.” And he’s got company on both sides of the Hill.

Senator Kyl has reportedly said that the plan would be “almost as good as full repeal” of the estate tax. And indeed it would. Last year, the Tax Policy Center figured that only 0.3% of estates would owe any tax in 2011 if the President’s proposal were adopted. The Kyl/Lincoln proposal, it said, would cut the number by almost half.

Wonk Room blogger Pat Garafalo reports that Senator Kyl will try to attach the proposal to a small business bill that may come up for a vote in a couple of weeks.

But first Kyl’s got to find an offset for the extra $80 billion or so it will cost. Remember, this is not the total cost — only the projected additional cost as compared to the President’s proposal and only for the first 10 years.

In May, Kyl told reporters that he’d pretty well figured out the pay-for. He and some other leading estate tax opponents in the Senate had come up with a couple of gimmicks that would mask the actual costs. The coalition has fallen apart. Hard to know whether this means the gimmicks have been shelved.

Another clever idea that’s been floated would allow people to prepay their estate tax. No details here, but the bottom line is that it would improve the 10-year cost score by forfeiting tens of billions later.

But say that Senator Kyl and colleagues came up with an offset that wasn’t just smoke and mirrors. Why should Congress be giving away billions more to the wealthiest fraction of Americans?

Is there nothing better to do with the money? Do we or don’t we have a long-term deficit problem?


Protest Pits DC Sales Tax Expansion Against Safety Net

May 7, 2010

Just when I thought I’d heard everything comes an orchestrated groundswell of grassroots protest against the proposed expansion of the D.C. sales tax. Seems that relatively well-off fitness buffs are outraged that their gym memberships and yoga classes might be taxed.

The sales tax expansion is part of a package of revenue-raisers proposed by the DC Fiscal Policy Institute and the more than 60 members of the Fair Budget Coalition. As they say, the sales tax hasn’t been updated to reflect the fact that people now purchase a wide variety of services, as well as the goods to which the tax applies.

If the DC Council doesn’t adopt some reasonable measures to increase tax revenues, the Fiscal Year 2011 budget will have to be balanced by devastating cuts in core programs and services.

We can get a glimpse of what this will mean in the mayor’s proposals for child care subsidies, adult education and training, affordable housing programs, community health services, legal aid for low-income residents and temporary cash assistance for those with severe disabilities.

Another glimpse, were one needed, in yesterday’s massive layoff of child welfare workers, including every one of those who provide much of the direct, day-to-day support for foster children and children at risk of removal from their families.

Yet at the very moment these workers were getting their pink slips, e-mails about the potential health club sales tax were flooding Councilmembers’ inboxes.

Whom will we hear from next? People who object to paying a few dollars more for private golf lessons, cleaning services for their hot tubs and professional advice on their closet space?

New, Quick Way To Support A Balanced Approach To DC Budget-Balancing

April 18, 2010

I’ve already beaten the drum for tax increases to help balance the District’s Fiscal Year 2011 budget. Now the Fair Budget Coalition has given us a quick and easy way to support them.

Though the mayor’s proposals include some revenue-raisers, they’re apparently not enough to avert cuts to a number of programs that serve the needs of the District’s low-income residents. As the DC Fiscal Policy Institute reports, child care, adult education and job training, mental health services and support to help grandparents care for their grandchildren will all take hits.

And the level funding proposed for some other programs–homeless services and locally-funded housing vouchers, for example–will deny many low-income residents the help they urgently need.

DCFPI has pulled together its previous recommendations for revenue-raisers and, unless I’m mistaken, added some new ones. All told, they would raise somewhere in the neighborhood of $70 million. Together with Congressional approval of more reasonable rainy day fund rules, they would produce the wherewithal for a budget that minimizes immediate hardships and puts our community on track toward a fairer, more prosperous future.

FBC has an editable letter we can send to support this balanced approach. DC Council committees have begun work on their parts of the budget. So time is of the essence here.

DC Government Faces New Budget Gap

June 23, 2009

As reported, the Chief Financial Officer for the District of Columbia has issued a revised revenue forecast. The news is not good. He now estimates a further $190 million drop in revenues for this fiscal year and a Fiscal Year 2010 shortfall that’s $150.2 million greater than the one used to develop the budget.

The Mayor can tap the “rainy day fund” to cover the current deficit. But that leaves the FY 2010 deficit, plus the need to replenish the “rainy day fund.” So the Mayor and the City Council have to go back to the drawing board because the District must, by law, operate with a balanced budget.

Programs that serve low-income people are highly vulnerable in situations like this. Last November, for example, the Council closed a projected budget gap with cuts that hit these programs hardest. Councilmember Jack Evans, who chairs the Finance and Revenue Committee, now talks of having to look for funds in the education and human services areas.

For FY 2010, the Mayor and the Council closed the then-projected budget gap with a mix of program cuts and revenue raisers. Perhaps they can find some further savings that won’t undermine critical services. But I think it’s time they revisit the revenue side of the ledger.

They’ve already frozen the cost-of-living adjustment for the homestead property deduction. More of the same will only work further hardship on low-income residents. Councilmember Jim Graham has proposed an alternative that would shift more of the tax burden to the wealthiest residents–a new top income tax rate for filers with taxable incomes above $500,000.

As I wrote awhile ago, the proposal was all but DOA in April. But that was then and this is now. And the DC Fiscal Policy Institute’s arguments in favor still make good sense.

States across the country are grappling with similar–and, in some cases, much larger–revenue shortfalls. The Center on Budget and Policy Priorities reports that at least 23 have enacted tax increases. Several have adopted new top tax rates and/or other changes focused on high-income filers, e.g., a reduction in the capital gains exemption. At least three others are considering similar measures.

As CBPP says, many prominent economists have concluded that raising taxes during a recession–particularly those that affect only high-income families–is generally better for a state’s economy and its citizens than deep budget cuts.

Evans thinks otherwise. “Tax increases,” he says, “only delay the inevitable.” But why? Can’t a sustainable revenue raiser avert needs to cut funding not only now, but later?

Let’s hope that the Mayor and other Councilmembers look carefully at all their options. Because there’s no need to balance this budget on the backs of the poor.

DC Councilmembers Propose Tax Giveaways

June 10, 2009

The DC Fiscal Policy Institute has been blogging on proposed tax breaks for select commercial interests.

First came a posting on proposed tax abatements for six new projects. These include a luxury hotel in Foggy Bottom and two developments at Metro stations–all prime real estate and potentially very profitable. DCFPI estimates lost revenues at $3.3 million in FY 2010 and $13.7 million through FY 2013.

Now comes a posting on a bill to substitute a modest lump sum payment for the taxes the Union Station retail center pays. This one gives away an estimated $2.45 million a year.

I’m simply appalled. Here’s a City Council that:

  • Just congratulated itself for closing an $800 million budget gap while modestly increasing funding for a handful of programs that serve low-income people.
  • But couldn’t find enough funds for TANF benefits to even keep them level with inflation.
  • Couldn’t find enough funds for the Local Rent Supplement Program to support the development of more than 180 affordable housing units.
  • Virtually ignored the dire straits of the Housing Production Trust Fund–another key source of funding for affordable housing construction and renovation.
  • Is well aware that the upcoming revised revenue forecast may reveal a new budget gap.

And yet some Councilmembers are proposing bills that would reduce District revenues. If they really think we’ve got money to spare, then why not use it to shore up programs that help our most vulnerable families meet basic needs?

Doing that would make the city a better place for all of us. Tax breaks for retailers at Union State won’t.

DC Council Committee Finds $$ For Affordable Housing and More

May 7, 2009

D.C. City Council committees have finished marking up the Mayor’s budget, i.e., making changes to create the budget the Council will finally vote on. It’s pretty clear that they’re not all happy with proposed funding levels for programs that serve low-income residents–or with the proposed tax changes and fees that would hit low-income residents hardest.

But it’s not enough to have concerns. If Councilmembers want to fund increases or modify revenue raisers, they’ve got to find other funds to keep the budget balanced. And that’s what the Committee on Public Works and Transportation has just done. Details are in its draft report and recommendations.

The funds the Committee found wouldn’t come out of any other program budget. In fact, one source wasn’t in the Mayor’s budget at all–a projected $26.2 million from additional citations for neighborhood parking violations. Of this amount, $6.8 million will come from the city’s new Sweeper Cam Initiative–cameras mounted on street sweepers that are used to photo license plates of illegally parked cars.

The Committee proposes that $3.5 million of the Sweeper Cam revenues be used to increase funding for three affordable housing programs:

  • The Local Rent Supplement Program, which provides housing vouchers for very low-income residents and so-called “project-based vouchers,” which are linked to affordable housing units. (Project-based vouchers cover some of the ongoing operating costs of these units and so also help developers secure private financing.)
  • The Housing First program, which provides permanent housing with supportive services for chronically homeless individuals.
  • The Housing Purchase Assistance Program, which helps low and moderate-income individuals and families cover the down payment and/or closing costs on their first home.

Another $1.5 million of the Sweeper Cam revenues would go to the TANF (Temporary Assistance for Needy Families) program. According to the DC Fiscal Policy Institute, this wouldn’t even preserve the value of the current benefit, let alone provide TANF families with anything close to what they need for basic living costs. So they’ll still be in worse straits unless the Council finds more funds.

The other source of found funds is about $15.5 million in Metro Transit Authority costs that were double-counted in the Mayor’s budget. The Committee recommends that the Council use $12 of this instead of adopting the proposed Streetlight Operation and Maintenance Fee–a new revenue raiser that would add $51 per year to residents’ electricity bills.

The Committee would also combine $1.9 million from one of the double-counts with $990,000 in Sweeper Cam revenues to fund a continuation of the cost-of-living adjustment for the standard deduction in D.C. personal income taxes. This is one of four COLAs that would be eliminated under the Mayor’s budget.

The Committee’s recommendations aren’t a done deal. Other Councilmembers may have different ideas about what to do with the found funds. Councilmember Evans, for example, has talked about business tax cuts.

And one would hope that some Councilmembers would have reservations about the more than $6.1 million in earmarks for groups and projects in the PW&T Chairman’s ward. Enough found funds here to fully fund a real TANF increase, with plenty left over to boost affordable housing resources or preserve some of the other COLAs.

The City Council will meet on May 12 to vote on a final mark-up. So it’s time to weigh in if you’ve got views on what the priorities should be. Contact information is on the Council’s website.