Charles Rangel has just announced (Oct 22, BNA Daily Tax RealTime) that he is putting together a draft of tax legislation that will make the current law on estate tax permanent--that's a law that provides a mere 45% flat rate on the taxable estate amount, which is the excess over the $3.5 million basic exemption (much more when you take various spousal items into account). Remember that for an estate of $10 million left by both spouses, that's an effective tax rate of less than 14%!
According to Rangel, making the current amount permanent is a "high priority." Why? Interestingly, there's nothing in the BNA article on this announcement that gives any reason at all.
The cost would be $233.6 billion over ten years.
Let me repeat that--if we make the current estate tax rates/exemption amounts permanent instead of allowing the estate tax to lapse back to where it was before George W. Bush and the Republicans in control of Congress decided to cut taxes on the wealthy to "ensure growth", it will cost us about a quarter of a trillion dollars over the next ten years.
This was a huge Republican priority since it is a bill that benefits ONLY the super rich who have estates worth more than $3.5 million. The GOP wanted to kill the estate tax entirely, but opted for doing it in in bits and pieces. They passed a bill that eliminated the estate tax gradually down to zero, then resurrected it from the dead back to its 2001 level in the next year. That way, they pretended that they weren't really creating the gigantic deficit hole that they were really digging for us, because they counted all that income from the estate tax, back at the 2000 levels, in the "out" years. Of course, they really intended to dig the huge deficit hole (remember that until the Democrats were in control and arguing for the need for deficit spending as a stimulus, there wasn't a tax cut-created deficit that the Republicans didn't like). They just hoped they could fool most of the people for most of the time into thinking this was something reasonable and that it was something that ordinary Americans should care about. Regretably, it works because many people who have no possibility of ever being subject to the federal estate tax are convinced that their small estates will be cleaned out by it. Clearly, the GOP strategy was that once they had gotten the estate tax down to zero, all those folks that hadn't managed to die in that year would raise hell unless they kept it at zero from then on. The Dems are clearly afraid to let the provision sunset under its own terms--they're too scared that the Republican strategy will successfully bite them when they let the estate tax come back in 2011, right as campaigning gets under way for the 2012 elections. So they're conceding half a defeat up front by planning to make the Republican's weak estate tax law.
In case no one noticed, here are a few relevant facts:
1) our national debt is more than $11 trillion and climbing
2) our economy is mired in a Great Recession that is leaving more people permanently dismissed from their jobs than we've seen in similar situations before, while the bankers that caused the global mess are raking in huge rewards in a banking business that is very little banking and lots of speculative trading, and one that wouldn't exist without the Fed and the government guarantee underlying their business
3) the nation need sto spend money on some very important things, like health care for war veterans, infrastructure repairs, public transportation, basic research, education
4) the Bush tax cuts were enacted at the same time as the nation was led into a "war of choice" requiring huge and ongoing expenditures and in the midst of a bubble economy for which a not-pleasant future could be predicted based on the early warning signs (Enron, Long Term Capital Holding, the frenzied growth in CDOs and credit default swaps) and which ultimately resulted in the Bush regime's multi-trillion-dollar bailout of the big investment banks and trillion-dollar deficits
As a consequence, the estate tax revenues really matter. They are not insignificant, and they come from a reasonable source (estates with multi-millions of dollars, that will otherwise go to beneficiaries/heirs who have done nothing to earn the windfall). We should not make the 2009 rates permanent. We should instead treat the 45% rate as the minimum rate on the lower-value estates, and enact a progressive rate structure, such as a 55% rate for estates over $20 million, and a 60% rate for estates over $100 million (etc.). We should lower the exemption level back down to $2 million--there is simply no reasonable justification for granting further tax largesse to huge estates.
Of course, we really should undo most of the Bush-era tax cuts, reinstating the law as it was in 2000 before the Republican assault on the federal fisc in the name of promoting growth began. The Bush tax policies, combined with the Bush deregulation regime, were a disaster. They did not promote growth; in fact, they promoted speculative frenzies in risky investment and enormous losses sustained by the nation to make up for that risky behavior. Ordinary workers' wages stagnated; only the rich got richer. Read Economist's View, What's Good for Goldman Sachs is Good for Everyone (Oct. 21, 2009) to understand better the mentality that thought (thinks) tax cuts for the wealthy would be the way to prosperity. The prosperity of the wealthy, yes. But of ordinary Americans? No way. (Read the comment by Richard Serlin, an adjunct at the University of Arizona. He adds some context to the WaPo article by Ezra Klein about the stagnation of incomes for the middle class.)
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