By Gary Bass, executive director, OMB Watch
June 8, 2006

Today, the Senate voted to stop debate on legislation to repeal the estate tax, holding at bay once again the well-funded 20 year campaign to kill the tax. OMB Watch applauds those senators who voted to preserve the estate tax and save the American people $1 trillion in the process. Opponents of the estate tax will continue their push and will now likely turn to "reform" as a backdoor to gutting the tax.

The estate tax requires heirs to pay a tax on assets they inherit. Currently, $4 million can be passed on by a couple tax free ($2 million for an individual). This exemption rises to $7 million for a couple ($3.5 million for an individual) in 2009. Estate taxes can also be lowered through a number of means, including giving to a charity or creating a foundation. In 2009, it is estimated only 7,000 families or 0.2 percent of estates will be taxed.

Conservatives, with 18 super-rich families leading the campaign, have cast repeal of the estate tax as ridding all hardworking Americans of a tax that is unfair and bad for our economy. But the facts completely contradict those claims, and more and more people are learning those facts: multi-millionaires, the idly rich, pay the vast majority of this dynasty tax.

Repeal advocates also try to downplay the revenue that the tax brings in. Yet that $1 trillion would do a lot to offset the shortfall in Social Security. It could provide a hefty payment toward health care for all Americans. It would even be more than enough to launch an energy plan that meets 21st century needs. It strikes us as odd that $1 trillion would be scoffed at by the same folks that focus so much time and energy into shaving a million dollars here and a million there from already bare-bones social spending.

The estate tax is about more than federal revenue; it is also a moral issue. As Robert Reich pointed out, speaking recently on NPR, “Not since the days of the robber barons of the 19th century have we seen this much wealth concentrated in so few hands.” Today, the richest 1 percent own more than a third of America’s wealth, up from 20 percent just 30 years ago.

In many ways, the estate tax issue is a defining political issue. In general, Republicans are for repeal and Democrats for preserving the estate tax. However, today’s vote revealed some stark divisions within the parties. Two Republicans, Sens. George Voinovich (OH) and Lincoln Chafee (RI), voted against their party. As the vote took place, Voinovich cast his vote early, sending a signal to all that repeal was the wrong course of action, especially in light of growing federal debt. And Chafee joined him.

Yet four Democrats — Sens. Max Baucus (MT), Blanche Lincoln (AR), Ben Nelson (NE), and Bill Nelson (FL) — bolted, joining Republicans in endorsing repeal. Both Nelsons are up for re-election and caved, it seems, to avoid the inevitable "death tax" attack ads by powerful special interests that would benefit from repeal. For some reason, Lincoln has repeatedly said she supports repeal.

Perhaps the most interesting renegade is Baucus, who isn’t up for reelection until 2008. As the ranking Democrat on the Senate Finance Committee, he is the point person on the estate tax - yet he has long supported full repeal of the tax. This leads us to wonder why on earth the Democrats would allow someone to negotiate on their behalf whose position on the issue goes against that of the caucus.

Details surrounding the negotiations point to just how important answering that question is. Last year Baucus began negotiating with Republicans on a compromise "reform" proposal. Baucus' bottom line was preserving 50 percent of the revenue generated by the estate tax. This year, with polls showing strong support for preserving the estate tax and deep concern with our rapidly rising federal debt, Baucus has proposed a compromise that preserves only 25 percent of the revenue. Could Baucus' negotiation skills be so poor that he would weaken his offer after his position has been strengthened?

A June 7 memo from political strategists Stan Greenberg and James Carville of the Democracy Corps cuts right to the heart of the problem:

"That any Democrat in the U.S. Senate [sic] considering voting for the repeal of the 'estate tax' — an over 700 billion dollar tax cut for the wealthiest one percent — helps explain why Democrats are underperforming. That leaves voters unsure about what Democrats stand for and undermines the main choice in this election."

The memo continues with data from a Democracy Corps polling that shows a 23-point advantage to Democrats that challenge the Bush message that the economy is "strong and growing stronger" and needs tax cuts, and counter with messages that highlight rising costs and lower wages, opposes high-end tax cuts and calls for new economic policies.

OMB Watch remains nonpartisan, silent on the question of which party would best run Washington. We are not, however, and cannot be, neutral on policy choices that harm our social and economic fabric. Repeal of the estate tax further shifts the tax burden onto the shoulders of working families. All of our elected leaders should be concerned with our nation's fiscal health and the maintenance of opportunity for all Americans, and in honestly addressing these concerns, see the value of the estate tax.

Unfortunately, this will not likely be the last we hear of plans to gut the estate tax. The pro-repeal camp will likely shift their energies to debating "reform." We view with skepticism "reform" proposals now making the rounds. Sen. Jon Kyl (R-AZ) has floated two proposals — one that would allow $10 million tax free ($5 million for individuals) and a taxable rate of just 15 percent. That would preserve 16 percent of the revenue from the estate tax, in essence, taking $825 billion from the public coiffures and depositing into the accounts of multi-millionaires. Kyl has also suggested the possibility of moving closer to Baucus' poor reform proposals. Kyl's newest effort — $10 million exemption ($5 million for individuals) with a 15 percent rate and a 30 percent rate for estates larger than $60 million ($30 million for an individual) — would still cost $800 billion - hardly a compromise.

The 20-year campaign to repeal the estate tax will carry on, no doubt, like the well-funding machine it is. They will now adopt the language of "compromise" and "reform." Responsible lawmakers from both sides of the aisle, however, must bare in mind that, without offsets to pay for the changes, these proposals amount to nothing more than backdoor repeal and should be rejected accordingly.