Eliminating Tax Would Be Too Costly
Should estate tax policy be reformed?
I’ll begin by correcting a widely held myth: There is no such thing as a “death tax.”
Not one American is asked to pay a federal tax upon death. Instead, we have a federal estate tax. And it is applied only to individuals of significant wealth — those with estates worth more than $2 million, or $4 million for couples.
The problem with this debate is that so many people wrongly suppose that they would be forced to pay the estate tax. One of my colleagues was even approached by an airport baggage handler, who told him that the Senate needed to repeal this tax because he was getting older and he was concerned about his family’s ability to pay that tax. As hard as that baggage handler worked, his family did not have the $4 million fortune necessary to even be affected by the estate tax.
So let’s start by calling the estate tax what it is — a tax on multimillion-dollar estates. This year, only 13,900 estates are of a size in value that they will pay the tax. In two years, the current law would push the threshold for couples up to $7 million for taxable estates — and only 7,000 estates would then be taxable.
In fact, only half of 1 percent of all estates in this country pay estate taxes. This is not a tax on the middle class. It is a tax on only the wealthiest families in our nation.
In 2010, the current structure would do away with any estate tax — but then in 2011, the law would impose taxes at pre-2001 levels, when any estate valued at $1 million or greater had to pay an estate tax. I support a permanent reform of the estate tax so that families can plan for a stable tax consequence. If a permanent estate tax were in place, families could make rational plans. As the law stands now, the tax consequences are vastly different between 2010 and 2011, and that is simply unfair.
At the same time, we cannot afford to eliminate a tax on the wealthiest when our nation is deeply mired in debt and is on track to accumulate debt at a faster rate than ever before. The debt has accumulated by nearly $3 trillion since President Bush took office in January 2001. The national debt is on track to increase to nearly $12.2 trillion over the next five years.
Eliminating the estate tax would cost the Treasury more than $1 trillion over the 10-year period starting in 2012, at a time we already are unable to pay our bills. And it would add to the nation’s debt at a time when we could least afford it — just as the baby boomer generation begins to retire, increasing the cost of Medicare and Social Security.
So in effect, eliminating the estate tax would add another trillion dollars of debt on top of the trillions we already owe. This is a proposal that makes no earthly sense. It would impose a hidden tax on the middle class, on whose shoulders it will fall to pay the additional trillion dollars in debt.
Yet some would tell you that eliminating an estate tax on more than $4 million a couple is necessary. In fact, the nation’s 18 wealthiest families have spent more than $200 million in a public relations campaign with the goal of wrongly convincing middle- and lower-income families that they would have to pay estate taxes.
In the cases of the very largest estates, much of the wealth that would be passed down hasn’t been taxed at all. The wealth in many of these estates has accrued through gains on Wall Street or real estate, the capital gains of which aren’t taxed until sold.
Let’s also put to rest this tired and untruthful claim that the estate tax is a burden that forces families to sell off the farm or small businesses to close. That is a farcical claim. The truth is that almost no small business or family farm is affected by this tax. In fact, the American Farm Bureau has been unable to identify a single farmer who has been forced to sell off his or her farm because of the estate tax.
I’m not the only person who rejects eliminating the estate tax. Warren Buffett, one of the wealthiest men in the world who made his fortune on Wall Street, says it makes no sense. Bill Gates Sr., the father of the richest man in the world, says his family doesn’t need this kind of help.
We have much greater priorities to pay for, including tax cuts for the middle class, before we cut the federal tax on multimillion-dollar estates. Extending the child tax credit for 10 years will cost the Treasury $206 billion. Extending relief for the marriage penalty will cost $50 billion. These are middle-class priorities that are important to everyday Americans who work to earn their paycheck and who pay their taxes. I believe Congress should consider these as a greater priority than $1 trillion in tax relief for multimillion-dollar heirs and heiresses.
Sen. Kent Conrad (D-N.D.) is chairman of the Budget Committee and also serves on the Finance and Agriculture, Nutrition and Forestry committees.