Who Really Benefits From The Elimination of the Death TaxBy Beth Wellington, Published on October 31, 2006
Revelers celebrated the date 6-6-6 in Hell, Michigan, where Paul Groenendal, one of dozens of leather-clad bikers there for the street party, wore horns glued to his bald head and joked he had ridden into town to "make deals and collect" according to Reuter's Rebecca Cook, in her June 6 story, Hell shines in its apocalyptic moment in the sun.
The "death tax," what those favoring repeal like to call the estate tax, affected about 30,000 estates in 2004. Supporters of the tax point out it generates income at a time when the current administration has rolled up record deficits. It prevents the concentration of wealth (and hence power) and encourages charitable giving.
Bob Reich has argued in Estate Tax Pyramid Scheme, his June 6 opinion piece for TomPaine.com:
"Today's workers are 24 percent more productive than they were five years ago but their median real earnings have barely budged….A big chunk has gone to people earning over $1 million a year… [and wealth] is even more lopsided than income…
What does this mean for the nation? Thirty years ago, the richest 1 percent owned less than a fifth of America's wealth. Now, according to a recent report by the Fed Reserve Board, they own more than a third. Not since the days of the robber barons of the 19th century have we seen this much wealth concentrated in so few hands.…
Talk about discouraging entrepreneurship….People who inherit great wealth just because they're lucky enough to have super-rich parents don't have any particular incentive to be entrepreneurial. They don't have any particular incentive to do anything. Giving them control over the American economy is like giving control over a Boeing 777 to teenagers with joysticks."
House Republicans temporarily set aside their ambition to abolish the tax completely after Senate debate June 8 failed 57 to 41 to muster the 60 votes needed to invoke cloture on H.B. 8, Congressman Kenny Hulshof's "Death Tax Repeal Permanency Act of 2005." At the request of Senate Majority Leader Bill Frist, House Ways and Means Committee Chairman Bill Thomas (R-CA) introduced H.R. 5638, The Permanent Estate Tax Relief Act of 2006, June 19.
The measure passed June 22 by a vote of 269 to 156. The Congressional Record of the debate starts on page H 4448. It exempts the first five million dollars of an estate from taxation (ten million for couples) starting in 2011, when the total repeal of the estate tax in 2010 sunsets. Estates of up to twenty-five million dollars will be taxed at the capital gains tax rate, currently 15%. Those over that amount will be taxed at twice the rate. The bill also contained a timber industry tax break aimed at winning over Democrats from logging states.
The Center on Budget and Policy Priorities analyzes whether federal and state governments are fiscally sound and have sufficient revenue to address critical priorities, both for low-income populations and for the nation as a whole. Joel Friedman and his colleague at the Center, Aviva Aron-Dine, weighed in June 23. In "Thomas Estate Tax Proposal Still 'Near Repeal,'" they write, "Based on Joint Tax Committee estimates, we estimate that the Thomas proposal would cost $611 billion between 2012 and 2021 (the first ten-year period in which its costs can be fully measured), and $774 billion if the costs of the additional interest payments on the debt are included."
According to the Chicago Sun-Times Mary Dalrymple, in "House whittles down estate tax; fails to kill it," on June 23, 2006, "Congressional tax experts estimated that if the changes become law, only 5,100 estates would face taxation when the changes are fully in effect in the fiscal year beginning Oct. 1, 2011. The Internal Revenue Service levied taxes on more than 30,000 estates in 2004."
Lincoln Chaffee (RI) and George Voinovich (OH) were the only Republican senators to vote with Democrats, along with former Republican Jim Jeffords (VT). Democrats Max Baucus (MT), Blanche Lincoln (AR), Ben Nelson (NE) and Bill Nelson (FL) voted to cut off debate.
Both Nelsons are up for re-election. In his June 8 Commentary on Failed Estate Tax Repeal Effort,OMB Executive Director Gary Bass speculates that they "caved, it seems, to avoid the inevitable "death tax" attack ads by powerful special interests that would benefit from repeal."
Bass continues, "For some reason, Lincoln has repeatedly said she supports repeal." I'd speculate that reason could be support she is receiving from the likes of the America Family Business Institute, which launched a June 6 "six-figure television advertising campaign directed squarely" at Pryor. Its thirty-second spot said, "When it comes to protecting Arkansas, Blanche Lincoln is willing to stand up and fight. She knows the I.R.S Death Tax destroys family businesses and farms. She's joined the bi-partisan coalition united to kill the Death Tax. Arkansas families are saying 'Thank you, Senator Lincoln.'" You can view the ad at the group's site.
Despite June 7 letters from that organization attacking them, David Pryor (AR), Ken Salazar (CO), Mary Landrieu (LA), Ron Wyden (OR) and Tim Johnson (SD) all hung tough. The group had also sent out a news release attacking Voinovich.
Bass adds, "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.".
Bob Reich, in his June 6 opinion piece for TomPaine.com, writes of the 18 families which United for a Fair Economy reports are financing the effort to end the tax, "They've underwritten the massive PR drive that fooled most Americans into thinking the estate tax was a "death" tax that would fall on them. They posed as small businesses and family farmers, saying their livelihoods would be threatened unless the tax were repealed. In fact it's hard to find a small business or family farm with an estate valued at more than $4 million."
The New York Times' Floyd Norris, in his June 10 account, The 'Death Tax' Lives on Despite Senate Republican Efforts to Kill It reports, "In 2004, the latest year for which data are available, just 736 tax returns were filed for estates worth $20 million or more, and only 520 of them paid any estate tax at all. Those that did paid just 19 percent of their values, but that came to $5.6 billion for the federal government, or more than $10 million per wealthy taxed estate."
The families fighting the tax might be willing to invest a lot on their PR campaign.
To show how well these families have disguised themselves, look at the May 24, 2005 Review Journal editorial, "Kill the Death Tax," which argued that the "very rich aren't campaigning against the death tax, because they don't pay it."
Then look at the report referenced by Reich, "Spending Millions to Save Billions: The Campaign of the Super Wealthy to Kill the Estate Tax", released April 25, 2006 by Public Citizen and United for a Fair Economy.
The report says that those 18 families, worth a total of $185.5 billion, have financed and coordinated a 10-year effort to repeal the estate tax, a move that would collectively net them a windfall of $71.6 billion. These families operate businesses such as Wal-Mart, Gallo wine, Campbell's soup, and Mars Inc. (the maker of M&Ms.) They work to end the estate tax through a coalition of business and trade associations they have organized, as well as though their company-hired lobbyists on the estate tax, and they "provided funding to at least four outside groups - the Policy and Taxation Group, the American Family Business Institute, the Club for Growth, and Citizens for a Sound Economy (now FreedomWorks) - that have either lobbied on the estate tax, run anti-estate tax advertisements, or both."
"A fifth group, the Free Enterprise Fund, was founded by the former president of the Club for Growth and partnered with the American Family Business Institute on a $7 million ad campaign in 2005."
If you look at the Free Enterprise Fund's web site, you can find these ads and those launched in 2006.
Public Law 107-16, enacted on June 7, 2001, provided for a scheduled phase-out of rates and an increase in the unified credit, until there was no tax on estates in the calendar year 2010. The only way to pass the measure was to promise a sunset of the law in 2011. While the purpose of sunset clauses is to revisit measures, opponents of the estate tax like to pretend that there will be no further modifications and 1997 law with a top rate of 55 percent and a unified credit of $1 million will go back into effect.
I'm leery of the Congress's willingness to go along with unsound policies but inserting sunset clauses. Just look at what happened with the Patriot Act, where the Senate killed a filibuster February 26, with changes that Judiciary Chairman Arlen Specter (R-PA) called cosmetic. As I saw him tell reporters, while I was watching C-SPAN, February 16, "But sometimes cosmetics will make a beauty out of a beast and provide enough cover for senators to change their vote."
It's ironic to compare this with the stump speech aphorism by Vice President Cheney at Washington Pennsylvania on October 27, 2004 and again with Specter in attendance in Nazareth on October 30: "As we like to say in Wyoming, you can put all the lipstick you want on a pig, but at the end of the day, it's still a pig."
If you just noticed this thrust to repeal the estate tax, it's a good thing to know that a bill by the same number, the Death Tax Elimination Act of 2000, passed both the House and Senate, but was vetoed by Clinton. The House did not have the 2/3 margin needed to override.
The proposed Act for 2001 was dovetailed into the budget bill, The Economic Growth and Tax Relief Reconciliation Act of 2001, by amendment 24, signed . Five days after being signed into law, there was already a resolution June 12 to make the repeal permanent. H.R. 2143, the Permanent Death Tax Repeal Act passed June 6, 2002 in the House by a vote of 256 to 171. It stalled in the Senate. H.R. 8, the Death Tax Repeal Permanency Act of 2003, passed 264 - 163 on June 18 and likewise stalled in the Senate.
The current incarnation, the Death Tax Repeal Permanency Act of 2005 passed the House by a vote of 272-162 on April 13, 2005. Only one Republican, spoke against the bill, "This legislation is further evidence of Republican's chronic addiction to digging deeper into debt. At a time when we face a deficit of over $400 billion, Republicans today chose to pass a bill that will cost Americans another $290 billion-with the cost growing to nearly a trillion dollars after 10 years."
Representative Earl Pomeroy (D-ND) proposed an amendment in the nature of a substitute to immediately eliminate the estate tax for most estates; to increase the estate tax exclusion to $3 million, effective January 1, 2004. The measure failed with only 1 Republican, Mike Castle (DE) voting for it.
As the Washington Post editorialized on April 12 in The Rich Get Richer, "The estate tax is a tough vote for some lawmakers in part because of the enormous amount of misinformation surrounding it. House members who fear that a vote for the more responsible Pomeroy alternative will be used against them should ask themselves two questions: Will my constituents really punish me for a vote to exempt 99.7 percent of estates from taxation? And how can I justify adding to the deficit, or cutting other programs, to underwrite a costly tax break for the extremely rich? "
In the Senate, the measure was immediately scheduled for the calendar. On July 29, Senate Republicans moved to vote to cut off debate after the recess, hoping by then Senator Kyl, sponsor the companion bill, S.420, could reach a compromise with Democrats. Kyl was offering an $8 million dollar exclusion with a minimal 15% tax rate on the remainder. Frist withdrew the motion on September 6 in order to clear the calendar due to Hurricane Katrina.
After the estate tax abolition failed in the Senate, I watched the repeal groups apply pressure. For instance, in a June 8 press release, Sen. Pryor Flip-Flops: Arkansas Senator votes against any chance of repeal or reform of the Death Tax, Americans for Tax Reform's founder and president Grover Norquist writes, "Today Sen. Pryor has shown his true colors. Sadly, Pryor has sided with the likes of liberal Senators Harry Reid and Ted Kennedy rather than his constituents back in Arkansas. This is a sad day for all small businesses, farmers, and ranch owners, and most important the Arkansas voters who were betrayed by his vote. They will, eventually, not be able to pass down their family businesses to the next generation.
"It just astounds me that Senators will not support permanent repeal of the Death Tax. Its (sic) clear a majority of Americans support its repeal and do not believe it moral to tax someone at their death. These Senators are clearly more concerned with spending our money than allowing families to pass down their hard work to the generations to come."
On June 11, The Club for Growth posted an invective against Evan Bayh on its blog.
So where should you look on the internet, if you want to keep an eye on this issue? Obviously, you may want to track sites like Americans for Tax Reform, Policy and Taxation Group, the American Family Business Institute, the Club for Growth, Free Enterprise Fund. You can find other groups fighting to end the estate tax among the groups who sponsor C-PAC, the Conservative Political Action Conference, for which I've compiled a list of links. Also I've abstracted more details on the 12 families. At Sourcewatch.org, I've listed all of the state level "think tanks" at the article on the State Policy Network. The group's list of links to those organizations is here.
You'll find the following anti-repeal groups provide excellent information:
- OMB Watch, founded in 1983, works to promote government accountability, citizen participation in public policy decisions, and the use of fiscal and regulatory policy to serve the public interest. It maintains a blog with the latest news on the estate tax, as well as action alerts.
- The Center on Budget and Policy Priorities provides regularly updated analysis on the fiscal ramifications of proposals about the estate tax.
- Independent Sector, the "leadership forum for charities, foundations, and corporate giving programs," outlines the perspective of the effects on charitable giving.
- Public Citizen suggests that you continue to write your Senators applauding the cloture vote and asking them to fight repeal. It provides a form for generating an email.
- United for a Fair Economy has organized the Responsible Wealth Project, with a variety of resources.