There are so many moving parts to the expiring measures due at the end of the year that it’s often hard to assess them all. Republicans like to frame them solely as about taxes, which is untrue – the sequester and the change to Medicare reimbursement rates and the extended unemployment benefits make up a large portion of the fiscal policy matters. But embedded in there is also the estate tax.
The Bush Administration reduced the estate tax gradually in 2001, adding in the same sunset provision to blunt the reduction in revenue over the 10-year budget window. It disappeared in 2010 before returning in 2011. Under the 2010 Bush tax cut deal, the estate tax got extended at 2009 levels – an exemption on the first $5 million of the estate, with a 35% tax on every succeeding dollar – for the next two years. If nothing is done, the estate tax goes back to the Clinton-era standard of 2000, with an exemption on the first $1 million of estates, and a 55% tax thereafter.
This is a tax that only hits rich heirs, and it establishes an important principle, that we will not have an American aristocracy that just passes on all their wealth from generation to generation. Republicans, with their directive to protect the interests of the wealthy, have sought to eliminate the estate tax incessantly, and they succeeded for tax year 2010. But they’re being aided by the Democratic head of the Senate Finance Committee, Max Baucus, who wants to keep the estate tax at 2009 levels, a complete giveaway to the Paris Hiltons of the world.
Baucus told the Great Falls Tribune in an interview Sunday that he wants to keep the Bush-era rate for estate taxes in order to protect ranchers and farmers who pass their properties on to their children.
“…Baucus is working to preserve a reduction in estate taxes that exempts the first $5 million of an estate’s value for individuals and taxes the remainder at 35 percent,” the paper wrote, but didn’t include direct quotes from Baucus on the topic.
Baucus frames this as protection for farmers and ranchers, even though you’d have to strain to find one farmer or rancher adversely affected by the estate tax, in the sense that they lost their inheritance or had to sell their farm or ranch.
Meanwhile, continuing to basically fail to tax estates at a meaningful level only exacerbates inequality, which actually is the major problem in the economy as it stands today.
Since the early 1980s, deficits have averaged around -3% of GDP with a pretty big variance, -5% in the mid-80s, +2.4% (surplus) in 2000, as high as -10% during the great recession, and about -7% and falling now.
On the inequality side, since the early 1980s, according to Piketty and Saez, we’ve transferred 15% of national income from the bottom 90% of households to the top 10%.
Which of those is the bigger economic deal? If you ask any DC policy maker what’s the most important challenge facing the nation, they’ll tell you it’s the budget deficit. Yet a compelling argument can be made that a shift of such magnitude in national income from the bottom 90% to the top 10%, and the commensurate problems it presents—the growing gap between growth and the living standards of the middle class and poor—is, in fact, at least equally, if not far more, worthy of their attention.
Now, as it happens, returning the estate tax to Clinton levels would raise a fair chunk of money. But to Max Baucus and frankly most of Washington, it’s more important to protect rich inheritors and exacerbate inequality and advance the new American aristocracy than it is to reduce the deficit. In fact, nobody cares about the deficit as much as they do protecting the wealthy.