Many Republicans in the House and Senate are avowed supporters of saving multi-millionaires from the effects of our federal estate tax. Senator Jon Kyl is no exception. But faced with huge budget deficits and runaway military spending due to the Iraq war and ill-targeted funding for enhancing domestic security, even ardent repealers like Kyl are finding it difficult to persuade enough Senators to repeal.
So what's Kyl's solution? He proposes setting the exemption at a whopping $8 million ($16 million for a couple) and lowering the rate to a piddling 15%. That's the maximum rate the super-wealthy pay on most of the rest of their income (the regular capital gains and dividend rate)! As you will recall from a prior post, even the New York Times, based in the Northeast's financial capital, called only for a $2 million exemption and suggested a 45% rate would be reasonable for taxing gains that may otherwise never be taxed in the system at all.
As the Center on Budget and Policy Priorities pointed out in a July 7, 2005 release (available at their website at www.cbpp.org), Kyl's purported "compromise" ends up being about as costly as repeal, retaining only a tiny fraction --just 7%--of the current estate tax revenues. Surely the Democrats in the Senate and moderate Republicans who understand the meaning of fiscal prudence won't fall for this gambit. While not as outright misleading as the estate tax repeal-and-spring-back gimmick, it has no merit.
And of course, there is a neat little gimmick in the works after all. Kyl's proposal may tie the estate tax rate to the capital gain rate, so that if the capital gain rate goes down to zero sometime soon, as many Republicans are planning, the estate tax would be effectively repealed at the same time. So this "compromise" is not much of one--raising 7% instead of 100% of current revenues, and setting the stage for a sleight of hand that will repeal the estate tax anyway just down the road a ways.
The Center on Budget and Policy Priorities estimates that Kyl's proposal would cost about $650 billion to $700 billion in lost revenues over the period from 2012 to 2021, compared to a cost of about $1 trillion if full repeal were passed instead. Either way, it's likely to be a lose-lose situation for ordinary Americans. The tax breaks for the super-wealthy will keep rolling along, creating ever greater disparities in wealth between the "haves" and the "have nots"; and the tax burden on ordinary Americans, who pay income and payroll taxes on their hard-won wages, will keep mounting, making sure that they stay in the "have not" class.