[edited 5/14 to fix typos]
We are almost halfway through 2010, the weirding time under the GOP's estate tax plan when there is no estate tax and the step-up in basis is gone. They had, of course, intended to eliminate the estate tax for good, but knew that it would cause huge deficits and so didn't want to pass that along with the rest of their 2001 tax cuts that already amounted to more than a trillion dollars. So they left it for later.
Repeal was a bad idea to start with. Most of the mythology around the estate tax is just that--sob stories ginned up by the coalition of wealthy families who want to shirk their responsibility to the country for taxes. This is where the President and the Democratic Party should use the bully pulpit to inform people about how the estate tax works. It is relevant for only the largest estates. It doesn't cause family farms to be lost, no matter how many times the wealthy families' coalition spokespersons claim that it does.
We are at a turning point in this country, where our inability to think long term and our need for immediate gratification mean that we are spending ridiculous amounts on a military budget, too little on infrastructure, and incapable of passing a single payer health care system like every other developed economy has. The Bush regime cut taxes over and over again--mostly aiding the wealthy but also costing us in terms of long-term deficits from lack of revenues that the tax cuts do nothing to restore. The economic theory on which the tax cuts were based has been proven wrong again and again throughout our history and that of other developed countries: tax cuts don't generate more revenues, wealthy people who are not taxed on their capital gains don't turn overnight into entrepreneurs.
So now we need to stop the drain of revenues from the federal fisc. Stop excessive military spending--we can't sustain ongoing wars in Iraq and Afghanistan for another decade any better than the USSR could do. Increase taxes--especially on the wealthy who have gotten an increasing share of the growth of the economy while middle and lower classes have stagnated.
That means that the estate tax is an ideal tax. The tax comes at the point when wealth from one generation is being passed to the heirs in the next generation who have done nothing to merit having it. The extraordinarily wealthy that bear the tax already have the lion's share of the wealth of the country, and some method of evening the odds is needed, else we will be a country of the gated rich and the multitudinous poor. The estate tax can be easier to enforce than other taxes (and would be even fairer if only Congress would act to make the various estate planning techniques using trusts and family partnerships unlawful). So Congress should just let the Bush tax change lapse according to the sunset provision that the GOP built into the law. That would mean that in 2011 we would revert to the law before the 2001 tax change.
There is no huge constituency worried about the estate tax--just the wealthy few whose estates might be subject to some taxation. But apparently Sens. Kyl, Baucus, Grassley and Lincoln are working to include a "bipartisan" proposal in the small business tax bill that they hope to put through Congress. Odds are it will cut the estate tax rate and increase the exemption amount, making the wealthy even less likely to pay any estate tax. See BNA Daily Tax RealTime, May 11, 2010.
Will somebody tell me how these Senators can justify another huge tax break for the wealthy when this country has the highest deficits it's ever recorded and little prospect of recouping that through tax revenues without adding tax increases, not tax cuts, to the mix? Maybe we should all get on the phone to those four senators to remind them that we have a huge deficit and that it is irresponsible to cut the estate tax at this time.