CHN: Estate Tax Repeal on the Senate Agenda
In the face of newly released data from the Federal Reserve Board that shows growing inequality in the U.S., the Senate is poised to vote on repealing the estate tax. The wealthiest 1 percent of Americans now own 33.4 percent of the wealth, more than the poorest 90 percent who together own 30.4 percent. From its inception, the estate tax was established to address the growing disparities in wealth. Repealing the tax would exacerbate the concentration of wealth in the hands of a few.
The tax bill Congress enacted in 2001 included provisions to incrementally increase the standard exemption in the estate tax and to lower the maximum tax rate. Today an estate of up to $2 million is totally exempt from the tax. That level will climb to $3.5 million in 2009 before the tax is repealed in 2010. Because the rules governing the 2001 legislation did not allow for permanent repeal, the tax is set be reinstated with a $1 million exemption in 2011 if Congress takes no action.
Advocates for retaining the estate tax point to the cost of repealing the tax in terms of lost revenue estimated to be $1 trillion over 10 years. This lost revenue would leave a huge bill that would have to be paid by the next generations in the form of debt and it would create enormous pressure to cut government services. Senator Kyl (R-AZ) and others have proposed modifying the estate tax by increasing the standard exemption and greatly lowering the maximum tax rate from its current 46 percent to 15 percent. This and similar proposals are touted as “reform” but lose so much revenue they are tantamount to full repeal.
A persistent, well-coordinated, 10-year anti-estate tax campaign financed by super-wealthy families with a cumulative net worth in the hundreds of billions of dollars has been effective in perpetuating myths and raising doubts about the fairness of the estate tax. These families who stand to save billions of dollars if the estate tax is repealed are associated with companies with household names like Mars, Campbell Soup, Gallo and Wal-Mart. Among the myths they perpetuate are ones that wrongly portray the estate tax as forcing many family farms and small businesses to liquidate their assets to pay for the tax, and that the estate tax amounts to double taxation.
In 2001, when asked to cite an example of a farm that would have to be sold in order to pay the estate tax the pro-repeal American Farm Bureau could not find even one. Similarly, small businesses responding to surveys do not list the estate tax as one of their top concerns. In reality, in 2006 fewer than one-third of one percent of all estates will have to pay any federal estate tax.
Rather than the estate tax being a double tax, it is more apt to be a vehicle for totally escaping taxes because the majority of wealth in large estates is in the form of appreciated property, stocks and bonds that have never been taxed and continue to grow in value since being acquired or inherited.
The Senate is likely to consider repeal of the estate tax in early June. The House voted last year to permanently repeal the estate tax. At a time when more in Congress are beginning to raise concerns about the fiscal health of the government, it would be disingenuous for them to press forward to repeal the estate tax.
For more information, see new report from Public Citizen and United for a Fair Economy.
“Currents and Undercurrents: Changes in the Distribution of Wealth, 1989-2004” published by the Federal Reserve Bank,