Last week, 10 Democrats in the Senate joined all 41 Republicans in voting for a $250 billion proposal to cut estate taxes. As Ben Furnas noted at the time, more than 99 percent of this cost (approximately $249.5 billion) would go to the inheritors of estates worth over $7 million.

The proposal was designed by Sen. Blanche Lincoln (D-AR) and Sen. Jon Kyl (R-AZ). Touting the tax cut in a press release, Lincoln claimed that it was “aimed at farms and small businesses.” “With all the money we’ve spent to help the economy improve, very little of it has filtered down to Main Street and family-owned businesses,” the release said.

As the New York Times noted, “the implication is that upon the death of an owner, estate taxes typically devastate small businesses and the jobs they provide. That is swill.” Indeed, according to some new analysis by the Tax Policy Center, Lincoln and Kyl want to spend $250 billion slashing taxes for the heirs of multi-millionaires in order to save just 60 small businesses or farms from the estate tax:

An always charged issue is how the estate tax affects small farms and family-owned businesses. We estimate that under the Obama proposal, 100 family farms and businesses would owe tax…The Lincoln-Kyl proposal would cut the number to 40.

According to the Congressional Budget Office, “almost all such estates are able to pay the tax bill without having to sell business assets.” As the TPC pointed out, “the biggest winners [of the estate tax cut] would be the very wealthy. Estates worth over $20 million would save an average of $3.5 million.”

According to new forecasts set to be released by the International Monetary Fund (IMF) “toxic debts racked up by banks and insurers could spiral to $4 trillion“:

The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy.

With that harrowing number hanging overhead, the TARP’s Congressional Oversight Panel released its six-month report yesterday. The panel, chaired by Harvard Law School professor Elizabeth Warren, questioned Treasury Secretary Timothy Geithner’s assumption that the toxic assets clogging the banks are merely economically depressed, noting that Treasury’s response “fails to acknowledge the depth of the current downturn“:

If its assumptions are correct, Treasury’s current approach may prove a reasonable response to the current crisis. [...] On the other hand, it is possible that Treasury’s approach fails to acknowledge the depth of the current downturn and the degree to which the low valuation of troubled assets accurately reflects their worth. The actions undertaken by Treasury, the Federal Reserve Board and the FDIC are unprecedented. But if the economic crisis is deeper than anticipated, it is possible that Treasury will need to take very different actions in order to restore financial stability.

The Warren panel also noted that Treasury “has not explained its assumption that the proper values for these assets are their book values.” These are very important observations, and it would behoove Treasury to provide some responses.

For its part, the panel suggested that liquidating troubled banks would be the strategy “least likely to sap the patience of taxpayers,” while also giving Treasury a definitive way out of its entanglement with the financial system. “Allowing institutions to fail in a structured manner supervised by appropriate regulators offers a clearer exit strategy than allowing those institutions to drift into government control piecemeal,” the report said.

As estimates regarding the number of toxic assets climb higher and higher — with Nouriel Roubini claiming there are $3.6 trillion worth — its becoming clearer just how much depends on Treasury finding a workable plan for cleaning up the banks. As IMF managing director Dominique Strauss-Kahn said, “you never recover before the cleaning up of the banking sector has been done.” And right now, Geithner’s clean up is premised on an assumption that more and more people are taking issue with.