One area of the debate over the Bush tax cuts that seems pretty cut and dried is the estate tax. Right now there is no estate tax for 2010. If we do nothing, it will revert back to the Clinton-era rates of 55% for estates over $1 million dollars (that’s a marginal tax, by the way, so the tax on an estate worth $1,000,001 would be 55 cents). Various proposals would lower the marginal tax rate and increase the exemption; the most common proposal is to permanently set the estate tax at 2009 rates, with a 45% tax on estates over $3.5 million dollars, $7 million for a couple’s estate.

What’s important to understand is that this reversion to 2009 rates permanently would cost the country $292 billion dollars, according to the Tax Policy Center. If we made it retroactive to capture the tax on estates in this holiday year of 2010, maybe it’s closer to $250 billion. But it’s still a large hole in the budget relative to current law, in a time when every deficit hawk is screaming about long-term debt.

Therefore, it’s the height of faux-populist kabuki to assail the absence of the estate tax in 2010, and then promote a policy that would reduce estate tax receipts by hundreds of billions of dollars. And that’s where we find Robert Rubin today in the Wall Street Journal:

Congress is finally turning its attention to the expiring 2001 and 2003 tax cuts. But there is one tax issue that should have long since been addressed: the federal estate tax. That tax expired at the end of last year, and there have been no estate taxes levied this year. If a new estate tax is not enacted as soon as Congress returns from its August recess, this void will continue until the end of the year.

We would recommend continuing 2009′s regime, with a top rate of 45% and a $3.5 million individual exemption. Small businesses and family farms can be protected both through the exemption (which is $7 million for a couple) and through special deferred payment rules.

We also share the view that the estate tax is grounded in powerful philosophical underpinnings. Our nation views itself as a meritocracy and a land of opportunity and we have a proud legacy of upward mobility. An estate tax helps us promote this legacy, by avoiding the accumulation of inherited economic—and political—power that is antithetical to this historical vision of our society and to the vitality and dynamism that has contributed so much to our success. …

Our country is losing revenue that, with its stressed fiscal conditions, it can ill afford to forego.

And so Robert Rubin’s solution is to have the country lose even more revenue, every year into perpetuity, and hand it to multi-millionaire heirs and heiresses.

It’s quite incredible that Rubin thinks he can get away with this in the name of tax fairness. But alas, precious few politicians or observers have been blunt enough to speak the truth – the estate tax should just revert back to Clinton-era levels, when there wasn’t actually a problem. Only Sen. Tom Udall has been forthright enough to say that out loud.

In effect, Rubin and other Democrats – this was President Obama’s campaign plan, incidentally – are playing right into the trap set by President Bush when he enacted the one-year repeal. The hope was to either get the repeal instituted permanently, or to position the needlessly lower rates under the Clinton levels as the wise “middle course.” And sure enough, people like Rubin use those rates as the starting point. I would be fine with that if additional tax brackets were included to step up the rates for bigger estates, but on balance the new rates should take in as much revenue as the Clinton-era ones, or else it’s merely a giveaway.

We can only now rely on that old faithful, Senate gridlock, to restore the estate tax to a perfectly reasonable level, grounded in the American belief that people should earn their fortunes. We don’t have a landed gentry in this country, or at least we’re not supposed to.