JULY 25, 2012
Rich people who have no problem bequeathing all their vital organs to strangers after death can't seem to abide relinquishing some of their wealth at the same time. Do they love their bank account more than their heart, liver, or kidneys? Apparently so, and the GOP is only too happy to accommodate them. Sens. Orrin Hatch (R., Utah) and Mitch McConnell (R., Ky.) have proposed a tax bill that would not only extend the Bush-era marginal tax rates (for all incomes, as opposed to President Obama's proposal to extend them only for family income up to $250,000); it would also extend an insanely generous 2011 estate-tax break.
Rich dead people are not job creators. Nor are they particularly good at stimulating the economy through consumer purchases, lacking as they do what John Maynard Keynes called "animal spirits." Yet for the past dozen years they have, as a class, received more economic stimulus than any other group of taxpayers. Under the Bush tax cuts the inheritance tax disappeared entirely in 2010. This caused no measurable increase in wealth creation, and it certainly didn't benefit the bottom 99 percent, who that year had absolutely no reason to believe news reports that the U.S. had begun an economic recovery. (Emmanuel Saez has calculated that 93 percent of the 2010 recovery ended up exclusively in the hands of the top 1 percent. No, that isn't a typo.) The lack of entrepreneurial drive demonstrated by the richest dead Americans remains a vexation to supply-side economists.
The inheritance tax was supposed to reappear in 2011, but the GOP made a ridiculously low estate tax the price for a payroll-tax cut for the middle class and a boost in tax credits for the poor. As of 2009, the year before it expired, the estate tax exempted the first $3.5 million ($7 million for inheriting couples). Under the deal Obama reached with Congress at the end of 2010, that exemption rose to $5 million ($10 million for couples) and the statutory tax rate (which was more than twice the average effective rate once various considerations were accounted for) dropped from 45 percent to 35 percent. Like the payroll-tax cut and the low-income tax credit increases, the estate-tax break is scheduled to end in 2013. The GOP, in an extraordinary act of brazenness, proposes to extend the tax break for dead rich people while eliminating those for living middle class and poor people. Apparently the GOP considers the payroll-tax cut and the low-income tax credit increases to be failed stimulus measures that were always supposed to be temporary. But if that were true, it would also have to be true of the estate tax giveaway. Why isn't that a failed stimulus measure that was always meant to be temporary?
President Obama wants to restore the estate tax to 2009 levels, which themselves were pathetically low compared to the pre-Bush era, when only the first $1 million ($2 million for couples; the inflation-adjusted thresholds would today be $1.3 million and $2.6 million) was exempt, and the statutory rate was 55 percent. Back in that supposedly high-tax era, only the largest 2 percent of all estates were subject to the tax. Today, only the largest 0.3 percent of all estates are. According to Chye-Ching Huang of the Center on Budget and Policy Priorities, the difference between the president's policy and the extension favored by the GOP is worth, on average, more than $1 million to those largest 0.3 of all estates. "The bigger the estate," she explains, citing data from the nonprofit Tax Policy Center, "the more lavish the tax break would be. Estates worth more than $20 million would receive an average tax reduction of $4.2 million in 2013." The cost to the Treasury, over the next decade, of extending the GOP-favored rates versus adopting the 2009 rates that Obama favors would be $119 billion.
In spite of all this, the White House was unable to sell the Democratic-controlled Senate on its estate-tax hike. The vote scheduled for this afternoon (July 25) will be on a bill that extends the Bush tax cuts up to $250,000 and extends the tax credit boosts for lower incomes and the payroll-tax cut for the middle class. But the bill includes no language at all on the estate tax, apparently because of opposition from Sens. Mary Landrieu (D., La.) and Mark Pryor (D., Ark.). This is utterly disgraceful. It's also weirdly self-defeating. If Congress does nothing on the estate tax, then it will automatically rise in 2013 to its 2001 level, which (shhhh!) is the best possible outcome. That "fiscal cliff" is looking better and better.