During the comparatively mild 1991 recession, President George H.W. Bush twice vetoed the extension of unemployment insurance because the $5.3 billion price tag would add to the deficit. After taking a pounding in the polls, he eventually made a deal with Democrats, who funded the program in part through higher taxes on the wealthy. But for Bush's reelection prospects in 1992, the damage was done, perhaps best captured by his pathetic plea to voters, "Message: I care."
Now with the Congressional GOP again following Bush the Elder's formula on the $34 billion extension of jobless benefits, Democrats should make them an offer they can't refuse. Democrats will pay for the 3 million desperate Americans whose unemployment checks will end this month by reinstating the expired estate tax on the rich. If Republicans still say no, they will be sending an unmistakable message about whose side they are really on.
"[The] argument the Republicans give is that these bills would add to the national debt. For example, the latest extension of unemployment benefits would have added $22 billion to the debt by the end of 2011."
Conveniently, that's about how much the estate tax would bring in to the U.S. Treasury. But thanks to the same GOP obstructionism, Republicans so far have chosen a one-year windfall for a handful of billionaires over millions of Americans in the throes of financial crisis.
In 2009, only 1 in 500 American estates paid taxes. In 2008, the tax produced $25 billion for the U.S. Treasury even in a year when the stock market was battered. But barring new legislation in Congress, in 2011 the estate tax rate will jump back up to its pre-2001 level of 55%, starting at $2 million per couple. In December, the House voted 225-200 to maintain 2009's rate of 45% beginning at $3.5 million per person or $7 million per couple. But as 2009 ended, Jon Kyl led the successful GOP effort to block the bill, ensuring the temporary one-year expiration of the estate tax on January 1st, 2010:
"It's a problem that doesn't have to exist if they'll just leave the existing law alone and let the rate go to zero, which is where everyone wants it to be."
Well, not everyone. Just, as the numbers show, the very, very rich.
Under the 2009 rate, 99.8% of estates owe no estate tax at all. And as the Center on Budget and Policy Priorities (CBPP) showed, over 62% of estate tax revenue comes from the "extreme wealthy" with fortunes greater than $20 million. "Only three percent of taxes owed" are paid by estates under $5 million. But as the Washington Post explained in April 2009, those are precisely the pockets Jon Kyl aided and abetted by Democrat Blanche Lincoln wants to line:
The estate tax is scheduled to disappear in 2010, only to be resurrected the following year at its 2001 level, when it applied only to estates worth over $2 million per couple at a rate of 55 percent. In fact, no one expects it to return to that level -- although letting it do so would be a far more rational response to the current crisis than the Lincoln-Kyl approach. Rather, President Obama has proposed holding the tax at this year's level: an exemption of $7 million per couple, with a 45 percent rate for amounts beyond that; this would cost $484 billion over 10 years. Senate Finance Committee Chairman Max Baucus (D-Mont.) has endorsed this solution, with indexing for inflation. This would hardly be punitive. At that level, 99.76 percent of estates would incur no tax whatsoever. Those who owe would pay, on average, $2.25 million less than they would have paid at the 2001 exemption level. Why in the world should these folks get more of a tax cut?
For their part, Lincoln and Kyl want to start at that $5 million individual threshold and adopt a lower 35% tax rate. In response, Vermont Independent Bernie Sanders two weeks ago sponsored a new estate tax overhaul, which at a time of record income inequality and growing fortunes for the wealthy would provide a richer haul for the Treasury. As the Wall Street Journal summed up Sanders' plan:
Mr. Sanders and his co-sponsors said, "It's time for multi-millionaires and billionaires to pay their fair share."
Under the proposal, as in 2009, the exemption would be $3.5 million for an individual, or as much as $7 million for a couple, with a tax rate of 45%. But estates with taxable assets between $10 million and $50 million would pay a 50% rate, and estates valued above $50 million would pay 55%. A further 10% surtax would apply to assets above $500 million.
The changes would be retroactive to Jan. 1 of this year.
As Kyl suggested on the Senate floor in December, Republicans want to bury the estate tax once and for all. And to be sure, The Republican scam over the so-called "death tax" is as bogus now as it was when President Bush first perpetrated it nine years ago. (The House GOP budget, fittingly unveiled by Rep. Paul Ryan on April Fool's Day 2009, would eliminate the estate tax altogether. CBPP estimated that ending the estate tax would cost the United States Treasury $1 trillion over 10 years.) While Nevada Senator John Ensign griped, "It destroys a lot of small businesses and a lot of family farms and ranches in America," House Minority Leader John Boehner (R-OH) groused:
"People who aren't wealthy, who may have built up value in land over generations and many family farms find themselves in situations where they've got to sell the farm in order the pay the taxes."
As it turns out, of course, not so much.
While CBPP estimated that only 1 in 500 estates is impacted by the current law, the Tax Policy Center quantified last year just how few family farms or small businesses are actually impacted by the estate tax proposals under consideration:
We estimate that under the Obama proposal, 100 family farms and businesses would owe tax. (We define such estates as those where farm or business assets are valued at under $5 million and comprise the majority of estate assets.) The Lincoln-Kyl proposal would cut the number to 40. Even under current law, fewer than 2,700 family farms and businesses would owe tax.
Sadly, right now no one is paying the estate tax. And in the case of the heirs of Texas billionaire Dan L. Duncan, a man who passed away in March, that literally means a multi-billion dollar pay day at the expense of everyone else.
Especially the 1.2 million increasingly desperate Americans whose unemployment benefits just came to an end, courtesy of the Republican Party. As Rhode Island Democratic Senator Sheldon Whitehouse rightly noted, with their trade-off Senate Republicans made very clear whose side they are on:
"What's particularly galling about this is that the Republicans cut this lifeline for middle class families, unemployed through no fault of their own, in the same month the first multi-billion estate passed tax free through to the heirs of a tycoon because of the Bush tax cuts, which weren't paid for. So, if you are concerned about the deficit, it's very selective concern about the deficit when you are letting billionaires' estates go through to their heirs untaxed, and cutting off the lifeline for unemployed families."
Back in 1991, Long Island Democrat Thomas J. Downey welcomed the deal with President Bush while noting, "For months, the Congress has attempted to do something to help the unemployed who are the innocent victims of a recession that is deeper and longer than expected." For his part, Republican leader Bob Dole scoffed that the pact would "take heat off the Democrats who are going to pay for something for a change."
Now almost 20 years later, Senate Minority Leader Mitch McConnell (R-KY) is similarly unmoved. For his Republican Party which had no problem with deficit spending during times of prosperity, helping struggling Americans during a recession is another matter altogether, As the New York Times reported:
"The only thing Republicans have opposed in this debate are job-killing taxes and adding to the national debt," Mr. McConnell said. Anticipating that Democrats would reject his proposal, he added, "Their commitment to deficit spending trumps their desire to help the unemployed."
Of course, as they made crystal clear with the perpetual effort to kill the estate tax, Republicans' commitment to the rich trumps everything else.
(This piece also appears at Perrspectives.)