After it finishes financial regulatory reform, one of the next items on the Senate docket is addressing the currently expired estate tax. The House of Representatives has already passed a bill retroactively setting the estate tax at the 2009 level (45 percent, with a $3.5 million exemption), but Sens. Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) have been pushing to cut the tax to 35 percent with a $5 million exemption.
Lincoln and Kyl have said that they are including spending offsets in their bill (since the additional $60-80 billion cost of their cut is subject to pay-go laws), meaning that they will raise revenue somewhere to pay for a tax cut for the heirs of multimillionaires. Unfortunately, National Journal is reporting that Lincoln and Kyl have “reached a general agreement” with Sens. Max Baucus (D-MT) and Charles Grassley (R-IA) to go along with their plan. Kyl said that the only remaining questions regard “when the new rate and exemption level would kick in — a cheaper option is to phase them in over time — and how to offset the difference between the new parameters and 2009 law.”
If true, this means that both the Chairman and the ranking member of the Senate Finance Committee are okay with finding $80 billion in spending offsets and wasting them on a tax cut for the heirs of multimillionaires. And while Baucus, Kyl, and Lincoln don’t have enough money to come even close to paying the estate tax under the 2009 law, as it exempts the first $3.5 million in assets, Grassley is another story entirely.
According to the latest financial disclosures, compiled by the Center for Responsive Politics, Grassley’s net worth is between $2.1 and $5.2 million. If his actual worth is on the higher end of that spectrum, the Lincoln-Kyl legislation could cut — and perhaps negate entirely — any estate tax liability that he has. (To what extent depends on how much of his net worth is officially in his spouse’s name. The only reported income from Grassley’s spouse is her salary.)
Under 2009 law, 99.8 percent of estates owe no estate tax at all, and 62.5 percent of estate tax revenue comes from estates worth more than $20 million. And because the exemption is so high, the average effective rate — the amount paid as a percentage of the entire estate — for those subject to the tax is about 14 percent.
It’s already going to cost $250 billion over ten years to keep the 2009 level in place, as current law calls for the tax to reset to the 2001 level (55 percent, with a $1 million exemption) in 2011. There’s simply no reason for spending another $80 billion on top of that to further reduce the tax burden on the richest of the rich.