When Obama signed off on his "deal" with Republicans (from which Democrats in the House and Senate were essentially excluded), he agreed to just about everything on their wish list, giving them the perfect opportunity in the 2012 campaign season to play the same chicken game again but without much credibility behind any White House threat to act differently the next time around.
The estate tax deal provides the "have-mores" (the GOP base according to George W. Bush) with more, while the rest of America suffers stagnant or declining wages. Remember that the wealthiest Americans own most of the financial assets, on which they already enjoy an extraordinarily preferential rate and for which they often can select the timing. Much of their income is tax-exempt--they are the primary purchasers, for example, of municipal bonds, and they have accessible a wide range of tax favored products (life insurance, etc.). If they work, they frequently receive disproportionately high compensation (compared to their own salaried employees) in tax-advantaged ways (stock options, deferred compensation plans, rich pension plans). Every part of the system favors the wealthy over ordinary folk, from the ability to reduce debt on their yachts in bankruptcy when ordinary folk can't get a reduction on their single big asset, their home, to their ability to "monetize" assets to live well while turning over their estates to their heirs in bulk.
It is especially telling to see how the Obama-negotiated deal will leave the estate tax with a token of the coverage it should have, as demonstrable from this chart from the Tax Policy Center (a Clintonian center project of the Urban INstitute and the Brookings Institution).
About 2.5 million Americans die every year. Assuming that current estate tax law remains unchanged in 2011, next year estates would have an exemption of $1 million and be taxed at a maximum rate of 55%. That means that about 45,000 estates should have to pay at least some estate tax, raising almost $35 billion. That's about where the estate tax was in 2001 when the series of GOP changes intended to result in ultimate repeal of the tax began. As a result of the phaseout of the tax under the Bush tax cuts, however, only five thousand five hundred estates had any estate tax liability at all in 2009 (that's only 5500 out of 2,500,000 or only about 0.2% of estates), and that was when the exemption amount was $3.5 million and the tax rate was 45%. That year, the estate tax raised only 13.8 billion, down from a typical $30-32 billion in the pre-Bush years.
The Obama deal with the GOP reduces that even further--providing a $5 million exemption and a 35% rate. It will enable the GOP push to repeal the tax in the next campaign cycle, as they push again their bogus arguments that it hurts economic growth by taking away money that would be invested in the secondary market, or that it hurts family farms, or that it doesn't raise enough money to matter, an argument that may appear stronger the bigger the exemption and the lower the rate. The first argument is bogus--rich people buying and selling stocks and bonds on the secondary market hasn't got anything to do with job creation or with companies having more money to invest in expansion. The second argument is bogus--even the Walton heir effort to herd up sympathetic stories of family farm losses proved unsuccessful since farms are especially protected by an installment payment plan that allows them to pay any estate tax due over a period of 14 years out of the farm revenues. The third is not true, since the pre-Bush revenues of $30 billion were substantial (and could be more so with effective legislation to take away some of the scam planning techniques, like family limited partnerships, valuation discounts, and various trusts). But the third is certainly made to appear more reasonable by the Obama deal to cut the rate down to a pitiable level and raise the exemption amount to far more than the vast majority of Americans will ever have.
Obama's deal thus ensures that in the 2012 campaign season, the GOP "tax cut no matter what" group will have the upper hand. It makes it even more likely that the wasteful and damaging Bush income tax cuts and estate tax cuts will be made permanent or even increased. It ensures that the Bush "have-more" base will continue to reap the rewards of a winner-take-all economy while the rest of us suffer. And it is a significant loss for the future of democracy as an institution that works for all citizens.
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