More on the Senate Hearing on the Uncertainty of the Estate Tax

In an earlier posting, I reported on the November 14 Senate Finance Committee hearing on the estate tax.  In particular, I focused on the misleading comments in Senator Grassley's release and the testimony of a "small" business owner (if you think a business worth a billion is small) that repeated the just plain wrong arguments used by those lobbying against the estate tax.   Again, family farms and small businesses just aren't lost to the estate tax except in the rarest of cases.  There are all kinds of things preventing that--from the huge exemption amount that isn't taxed at all to the ease with which prospering small businesses can take out loans to cover whatever small amount of estate tax is due.  Most estates don't pay any tax, and only the biggest estates owe any significant amount of tax at all.

There's a good article on the hearing on the OMB Watch website today:  Estate Tax Repeal No Longer On the Table, OMBWatch, Nov. 20, 2007.   That posting discusses in particular Warren Buffet's testimony in favor of retaining the estate tax.  Buffet supports some reforms to remove the uncertainties caused by the crazy sequence of provisions enacted as part of the wacky Bush sunsetting scenarios--an estate tax exemption that increases year by year for a decade, coupled with a estate tax rate that decreases gradually from 55% to 45%, all to result in repeal for one year in 2010, with reinstatement in 2011 of the 2001 estate tax scheme with a $1 million exemption and 55% rate.  Nutty, from the beginning. 

The Bush scheme expected that, just about now when people would really start complaining about the uncertainty of being able to plan to avoid paying taxes, Congress might agree to give the wealthiest taxpayers in the country a big break by making the 2010 provision permanent.  Luckily, the 2006 elections made that at least less likely, as Congress is beginning to realize that a $20 billion or so chunk of funding can do a lot of things that the government wants to do.

What kinds of reforms may make sense?   Buffet suggests some reform to adjust the exemption levels to an appropriate amount (probably slightly higher than the 2001 exemption amount) but increasing the rate for those at the top to make that change revenue neutral. Buffet shares my concern about a growing risk of plutocracy, which means a higher rate of tax on those at the top is one more way to help to blunt the force of inequality that gives wealth to wealth and power to those that have wealth.