THE BLOG
03/18/2010 05:12 am ET | Updated May 25, 2011

Of Death Panels and Tax Policy

A drag. A job destroyer. A wage cutter. A killer. A creature in a late-night horror movie.

Yes, the estate tax, that most reviled of taxes that so many of us cringe at the prospect of paying on our death beds, has once again reared its ugly head. Thankfully, the Heritage Foundation has set up a Rapid Response website to provide us with up-to-the-minute developments on efforts to reform the tax as well as catchphrases to help us argue for the tax's repeal.

The tax, which applies to transfers of assets to a person's heirs, is in reality little more than a conservative talking point. It is the "death panel" of tax policy and conservatives refer to it as such. Heritage Fellow Robert Alt (like every other conservative on Earth) calls it a death tax that is "politically known as the estate tax" (emphasis mine). If ever one was searching for the textbook example of conservatives' rhetorical perversion, this would surely be it. Even the IRS, for goodness sake, calls it an estate tax.

Conservatives love to refer to the impact that the estate tax has on small businesses and farmers, which has led to preposterous titles for legislation, such as the Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act. But in 2009 some 80 - 80! - small businesses and farms are likely to owe estate tax. Most of the tax will be paid by extremely wealthy individuals: the top 5 percent of earners pay 76 percent of the tax. In other words, conservatives use a handful of farmers and small businesses to cover for 5,500 wealthy taxpayers who would benefit most from repeal.

Dust is being kicked up now because the House will likely pass, with White House approval, legislation that raises the minimum exemption from the law and lowers the top tax rate. There will be much talk that this fix is necessary because of a Bush era tax law that, for one year only (2010), abolishes the estate tax completely. Surely the fix is needed. But what will be mentioned much less is that in 2011 the estate tax will revert back to (recent) historical levels: it will apply at a top 60 percent rate to households making above $1 million, well within our idea of the "wealthy." Although around 40,000 more households would be subject to the tax, 99.9% of these households would be millionaires (and only 2,500 would be small farms and businesses).

By passing the legislation, however, Congress would not only be aiding the wealthiest households who have survived the current economic downturn, but would be adding to the budget deficit - $234 billion, in fact - at a time when all we hear is that the deficit must be reduced. If only the Blue Dogs were paying attention!

Perhaps worst, though, is that Congress is expert at adopting short-term, stop-gap measures. Why not just fix the estate tax for one year and then let the clock expire, allowing the estate tax top rate and exemption to reset to their former, higher levels? Congress need not even vote for this to happen.

Progressives are often quieted with hush-hushes about political impossibilities and budget deficits. Well, allowing the estate tax to reset in 2011 is a smart, cost-efficient, equitable move well-suited to an era of scarce political courage.

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