The SanityPrompt

This blog represents some small and occasional efforts to add a note of sanity to discussions of politics and policy. This blog best viewed with Internet Explorer @ 1024x768

Monday, August 29, 2005

The Next Big Thing

Here's the next big debate for Democrats and progressives -- and no, it's not John Roberts.

All together now -- "the future of the estate tax." If the Democrats can't stay united on this one, and let attention shift from this debate to the O'Connor successor debate, then they don't deserve to be the governing Party. The next few months work out in microcosm all of the challenges facing this Party and this county. That hokum of Thomas Frank (What's the Matter with Kansas?) finds its answer now -- why do people in the middle of the country vote against their economic interest? Because Democrats typically care more about who is on the Supreme Court than the economic interest of the American people.

John Aloysius Farrell of the Denver Post has a good overview of the looming debate over the estate tax. A Grand Taxation Tradition:

"With war in Iraq, rising gas prices and health care costs, collapsing pension systems, political corruption and other issues clamoring for their attention, members of Congress are due back here next week to do what they do best. Give tax breaks to the wealthiest Americans. Even the dead ones."

Aloysius takes apart the misguided notion that thousands of American small businesses and family farms are threatened by the current system. Here's the crux of the article although the whole thing is worth a read:

It was a persuasive myth - until someone tried to find the tide of family farms and businesses supposedly being put on the block by cash-strapped, bereaved heirs. They proved difficult to find. The Congressional Budget Office concluded in a July report that, largely because almost all Americans have assets that fall beneath a cap that exempts them from the estate tax, fewer than 2 percent of the dead have to pay any tax at all.

And in an average year in all of America, the CBO found just 138 farms and 164 family-owned businesses threatened with dissolution. By locking the exemption at $3.5 million per estate, where it is scheduled to be in 2009, Congress would reduce the number of farms and family businesses that pay any estate tax to 159, and the number of endangered farms and businesses to 54 - barely one per state or territory.
It's clear from the math that a few very, very rich families have a lot at stake, and that the estate tax is one reason why our tax structure, as a whole, is progressive. Giving them a full repeal, as the House of Representatives voted in the spring, would cost the Treasury some $750 billion over the following decade, and shift our tax burden toward working folks.

Although it purportedly "kills" the death tax, the bill that passed the House does not free all family farms or businesses from taxation on inherited assets, nor from the complicated calculations and legal hoops that make the estate tax so unpopular. The House bill contains a "stepped-up cost" provision to make heirs pay a capital gains tax on the appreciated value of what they inherit, and so many families would still be socked with a hefty tax. At this point, it is unclear if Senate alternatives will include that provision.

Democrats have to hang together on this one or they will, as Ben Franklin during the American Revolution, they will surely hang separately. So far it looks like Senate moderates and the Dems are reluctant to stick the taxpayer with yet another unpaid bill and are balking at the current pricetag. Let's hope they keep their wits about them.

"Bad news for billionaires: It appears that many senators are, wisely, worried about the soaring federal debt. The estate tax may be distasteful, but even Alan Greenspan has testified that Americans would be stupid to borrow $750 billion from foreign creditors to keep the likes of Paris Hilton in salacious frocks and videotapes. "


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