Death Tax Myths, Estate Tax Realities
The Politics
Americans accept the need for taxation, but they don’t like taxes. And they never have—remember the Boston Tea Party? That’s why Americans are susceptible to conservative assaults on the federal estate tax. Progressives need to understand the public mood and change the conversation. Supporting a continuation of the 90-year-old federal estate tax does not mean we favor higher taxes, it means we support tax fairness.
The Facts
Conservatives enacted a warped estate tax law in 2001. The federal estate tax—which has been in effect since 1916—applies only to the estates of extremely wealthy people. In 2001, the Bush Administration and some of the richest families in America pushed to enact a law that has lowered the tax and will eliminate it entirely in 2010. However, to get around Senate rules, the entire law sunsets in 2011 when the tax will theoretically return to 2001 levels. [Public Citizen] As a result, Congress will have to pass a new estate tax law, most likely next year.
The federal estate tax doesn’t affect the middle class—it applies only to the very wealthiest taxpayers. In 2009, any estate worth less than $3.5 million ($7 million per couple) will be passed on to heirs and heiresses estate-tax free. [Center on Budget and Policy Priorities] In fact, only one of every 300 estates is subject to the tax. [Center for Economic and Policy Research]
The idea that the estate tax hurts farmers and small businesses is a myth. The Congressional Budget Office found that the estate tax threatens almost no farmers or small businesspeople. [CBO] In fact, the American Farm Bureau Federation has never cited a single example of a farm having to be sold to pay estate taxes. [New York Times]
We can’t afford this enormous tax break for the rich. The total cost of permanently repealing the estate tax would average about $110 billion per year (including increased interest payments on the national debt). [Center on Budget and Policy Priorities] That’s more than twice as much as we pay for everyone’s Social Security benefits. [Social Security Administration]
America’s wealthiest families lobbied hard to abolish the estate tax. The campaign to repeal the federal estate tax was financed by 18 of the richest families in America—including 23 billionaires—who spent nearly $500 million to enact this special interest legislation. That’s because these families, which include the heirs of fortunes from Wal-Mart, Campbell’s soup, and Mars candy, stand to reap over $70 billion from the estate tax’s repeal. [Public Citizen]
The Argument
Repealing the estate tax is unfair to middle-income taxpayers. Eliminating the estate tax gives a tremendous tax break to the heirs of the very wealthiest Americans. None of us should be naïve enough to think that another tax won’t be passed to replace the missing revenue. Nor should we doubt that the weight of that new tax will fall, as usual, on the middle class.
Progressive Solutions
A new estate tax law will have to be passed in 2009. It should be written to ensure tax fairness—not to extend unfair tax cuts for the rich. Barack Obama proposes freezing the estate tax at 2009 levels: a 45 percent tax rate on estates valued at more than $3.5 million.
