Yesterday, the Senate passed the tax cut deal by a whopping vote of 81-19, and the House is poised to consider the measure today. While it likely has the votes to pass, few observers expect the lopsided support that it received in the Senate. Too many House Democrats are still furious over the extension of Bush-era tax cuts to the wealthiest two percent of Americans.
Indeed, Democrats are poised to mount a last-ditch protest — by way of an amendment — over the estate tax, which Republicans commonly refer to as “the death tax.” A Gingrich-era manipulation of the language (and a brilliant one), the phrase “death tax” has led many Americans to believe that a corpse is taxed. It isn’t.
Here’s the truth about the estate tax:
According to a study published by the Federal Reserve Bank of Cleveland, only 1.6% of Americans receive $100,000 or more in inheritance. Another 1.1% receive $50,000 to $100,000. On the other hand, 91.9% receive nothing (Kotlikoff & Gokhale, 2000). Thus, the attempt by ultra-conservatives to eliminate inheritance taxes — which they always call “death taxes” for P.R. reasons — would take a huge bite out of government revenues (an estimated $1 trillion between 2012 and 2022) for the benefit of the heirs of the mere 0.6% of Americans whose death would lead to the payment of any estate taxes whatsoever (Citizens for Tax Justice, 2010).
That’s worth keeping in mind the next time you hear about the “death tax.”
However, that doesn’t make the Democrats’ amendment worthwhile. Republicans have made clear they will brook no changes whatsoever to the tax deal that passed the Senate, so, if the Democrats’ amendment were to pass, it would risk blowing up the deal — killing tax breaks for the middle-class and unemployment benefits. Besides, as the WaPo’s Ezra Klein makes clear, the House Democrats’ amendment would not make a dramatic change from the compromise:
There are basically three versions of the estate tax on the table. If we do nothing, it’ll exempt the first $1 million of estates and tax the value above that at 55 percent. That would affect 2 percent of estates and raise about $700 billion over the next 10 years. The version in the tax deal — also known as the Lincoln-Kyl rates — would exempt $5 million and tax the rest at 35 percent. That’d affect 0.25 percent of estates and raise closer to $300 billion.
And then there’s what House Democrats are fighting for: A $3.5 million exemption and a 45 percent tax rate. Chris Van Hollen calls this “the common sense compromise,” but it really isn’t. It’s the same level as the Bush tax cuts set in 2009. It would raise about $400 billion and affect 1 percent of estates. It’s much closer, in other words, to the Republican vision than to what’ll happen if we do nothing
I could see the argument for getting the estate tax back down to its 2001 levels. The rich have gotten richer since then, and their taxes have gone lower. But I can’t see the argument for blowing up the tax deal over the difference between George W. Bush’s 2009 rates and the Lincoln-Kyl rates. Over the next two years, the difference between those bills is $10 billion. If House Democrats are willing to risk the whole deal to fix the estate tax, they should actually fix the estate tax. Simply affirming the Bush rates isn’t worth it and is arguably worse than just taking a hardline on the necessity of the 2001 levels when the Lincoln-Kyl levels expire in 2012.
-by Cynthia Tucker