Yesterday, the House of Representatives passed an extension of the estate tax, permanently setting it at the 2009 level of a 45 percent rate on estates valued at more than $3.5 million ($7 million for a couple). Thanks to one of President Bush’s myriad accounting gimmicks, the estate tax is scheduled to disappear entirely in 2010, but return in 2011 at a 55 percent rate for estates of more than $1 million, which there is little stomach for in Congress.
The extension passed the House on a 225-200 vote, and now moves to the Senate, where things look decidedly murky. Earlier this year, 51 senators, including 10 Democrats (and then-Republican Arlen Specter), voted for an estate tax cut proposed by Sens. Jon Kyl (R-AZ) and Blanche Lincoln (D-AR) that would cost $250 billion and overwhelmingly benefit the heirs of the ultra-wealthy. And already, Kyl is responding to the House bill by saying that “he sees no way the Democrats can pass an estate tax extension before the end of the year, leaving them in for a ‘rude shock’ next year when the levy disappears”:
“Unfortunately, I think that’s inevitable,” Kyl told CongressDaily. “That wouldn’t have been the way I would have done it…Given the fact that Blanche Lincoln and I got 51 votes in the budget debate to move forward with a fairer estate tax reform, my hope would be we could pass that over here and that would be what ultimately became law.”
As of right now, it is decidedly unclear if the Senate will take up the estate tax at all this year, as health care has filled out the agenda. But one option reportedly on the table is to attach an estate tax extension to the FY10 Defense omnibus bill, which is coming up for consideration.
It’s really quite extraordinary that, while Congress is spending significant time harping on deficits, there is serious talk of a cut in the estate tax, and that merely extending current law is so contentious. House debate on the issue yesterday was heated, and took a turn for the absurd when Rep. Louie Gohmert (R-TX) announced that he was opposing the extension because “Jesus never advocated the government go steal.”
For some perspective, current law exempts 99.8 percent of estates. Plus, since the exemption is so high, the average effective rate heirs to those estates hit by the tax will pay will be just 14 percent. But the tax is still a significant revenue raiser for Treasury, and even enshrining the permanent rate costs $233 billion over ten years (relative to the baseline).
As Warren Buffett put it, “dynastic wealth, the enemy of meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward plutocracy.” And in a time when we are having serious discussions regarding how to fund a jobs package and an increased troop presence in Afghanistan, an estate tax cut would be inexcusable.