THE BLOG

Senate to Uber-Rich: "Help Is on the Way"

05/14/2009 05:12 am ET | Updated May 25, 2011

Sixteen months into the recession, the pace of job losses is worse than in the deep 1981-82 recession, a growing number of families are making excruciating choices with their shrinking pocketbooks, and the federal government is facing stunning budget deficits as far as the eye can see.

So, is this the time to spend about $90 billion over the next decade to give the nation's wealthiest households a new, multi-million-dollar tax cut?

The U.S. Senate apparently thinks so.

Earlier this month, it voted 51 to 48 to add to its 2010 budget plan a proposal by Senators Blanche Lincoln and Jon Kyl to substantially weaken the estate tax. Only the wealthiest 1 of every 400 people who die -- the top one-quarter of 1 percent -- would benefit from this proposal, since they're the only ones who owe any estate tax under current rules, according to the Urban Institute-Brookings Tax Policy Center.

Within this small group, the wealthiest of the wealthy would benefit the most. Estates worth over $20 million would get an average tax cut of $3.5 million.

This isn't a done deal. The House budget plan doesn't include this proposal, and Congress won't make its final decisions on the estate tax until later this year. But with the nation in two wars and a serious recession, and facing forecasts of damaging deficits for decades to come, the Senate vote is breathtakingly irresponsible just the same.

The estate tax is a tax on property (such as cash, stock, or real estate) that very affluent people arrange to transfer to their heirs when they die. President Bush's big tax cut of 2001 eviscerated the estate tax; in 2009, the first $7 million in value of a couple's estate is entirely free from tax and, in 2010, the tax disappears altogether for one year. But, unless Congress acts, the tax will then return in its much stronger, pre-Bush form in 2011, when the Bush tax cuts are scheduled to expire.

President Obama has proposed making permanent the estate rules that are in effect for 2009. The Lincoln-Kyl proposal, in contrast, would increase the exemption from the current $7 million per couple to $10 million and weaken the tax in other ways. This would cost $91 billion more than the Obama proposal during the first decade when Lincoln-Kyl's full budgetary effects would be felt, 2012-21.

How did Senate proponents sell their colleagues on the idea of spending so much money to benefit the estates of the wealthiest one quarter of one percent of Americans who die? Mainly with deceptive advertising.

In particular, they portrayed this tax windfall for the wealthy as an essential lifeline for small businesses and farms. The Lincoln-Kyl proposal would provide "crucial support and protection to small businesses, family ranchers, and farms," Minority Leader Mitch McConnell asserted on the Senate floor.

That's sheer nonsense.

Nearly all small farms and businesses are exempt from the estate tax under the current rules, so Lincoln-Kyl would do nothing for them. Only 100 small farm and business estates in the entire country would owe any estate tax at all in 2011 if Congress extends the current rules, the Tax Policy Center reports. Less than one quarter of one percent of the $91 billion in new tax cuts that the proposal would provide would go to estates that consist primarily of small businesses or farms.

But it was politically effective nonsense. Ten Democrats joined all Republican Senators in voting for Lincoln-Kyl: Max Baucus, Evan Bayh, Maria Cantwell, Mary Landrieu, Blanche Lincoln, Patty Murray, Ben Nelson, Bill Nelson, Mark Pryor, and Jon Tester. Senators supporting the measure typically stressed the small business angle. Murray's spokeswoman, for instance, declared, "Small businesses are hurting and we need to make sure they're protected."

Some proponents also claimed Lincoln-Kyl would not increase the deficit because Congress would offset its cost.

If you believe that, I have a bridge to sell you.

Both the Senate and House budget plans call for extending the 2009 estate tax rules without paying for it. (Extending the 2009 rules costs money because, under current law as noted above, the estate tax is scheduled to return to its larger, pre-2001 form after 2010.) If Congress isn't planning to offset the cost of extending the 2009 estate tax rules, it's extremely unlikely to offset the added costs of Lincoln-Kyl, which would be incorporated into the same bill.

Besides, even if Congress were willing to pay for this proposal, where would the money come from? Should we divert scarce resources from health care, education, anti-poverty measures, or deficit reduction to pay for a large new tax cut for the estates of the nation's elite?

Congress has a lot of tough decisions to make these days. This isn't one of them.