Recently in Estate Tax Category

Two New "Studies" from a Right-Wing Foundation Say the Estate Tax Causes the Rich to Stop Working and Spend Away Their Millions

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A new report from CTJ examines a duo of new "studies" claiming that repeal of the estate tax is crucial to our economy. The studies, which were commissioned by a foundation established to promote repeal of the estate tax, use one-sided analysis to produce the conclusions that their funders desire.

One study, released a few months ago by Douglas Holtz-Eakin and Cameron Smith, claims that repealing the federal estate tax would create 1.5 million jobs. The other, by Stephen Entin, claims that repealing the estate tax would actually result in increased federal revenue, not to mention higher gross domestic product (GDP).

The CTJ report finds that the "studies" have several fatal flaws. For example, the authors model the impact of taxes on the economy by considering the alleged costs of taxes but ignore the benefits. The benefits of taxes - the public services like roads, schools, law enforcement, national defense and other services that taxes make possible - are simply ignored. Since the authors assume that tax dollars are collected and then simply disappear, of course they can come to no other conclusion but that taxes (including the estate tax) are a drain on the economy!

Other flaws in these studies involve the illogical assumptions they make about how people respond to the estate tax. At one point Holtz-Eakin and Smith explain that the estate tax might cause a wealthy entrepreneur to "buy an around-the-world cruise" instead of investing his money.

But most estate taxes are paid on estates worth over $5 million, and 40 percent of estate taxes are paid on estate worth over $10 million. Let's say you had this sort of money and you wanted to keep your wealth from being taxed by the federal government. What would you do? You can't put it in stocks or bonds or even a savings account. You can't buy fancy houses, because they would become part of your estate. Even if you buy expensive cars or yachts, those would be part of your estate as well (even if they lose some of their value before you die).

You would have to spend your entire estate on caviar or cruises or cocaine or something that won't be around after you die. It's unclear whether anyone can eat away, cruise away, or snort up their nose $5 million. (We won't go so far as to say it's impossible.)

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On May 11, the Treasury Department released its "Green Book" containing new details of the tax changes included in the President's fiscal year 2010 budget proposal. In addition to extending the Bush tax cuts for all but the richest Americans and making permanent many of the tax cuts in the recently enacted economic recovery act, the President would also make many changes that would raise revenue by closing loopholes, blocking tax avoidance schemes and making the tax code more progressive.

A new report from Citizens for Tax Justice examines and describes the significant revenue-raising provisions that are sure to be debated fiercely in the months to come.

Read the report.

Approval Marks a Major Step Towards Enacting President's Agenda

On Wednesday, both the House and Senate approved a Congressional budget resolution for fiscal year 2010 that paves the way for several of the President's major initiatives. The resolution allows Congress to make new investments in education and clean energy and puts in place procedures that will make it easier for Congress to enact comprehensive health care reform. It also allows Congress to extend the Bush tax cuts for all but the richest Americans.

The budget resolution allows for about $3.5 trillion in federal spending in fiscal year 2010 and includes important tax and spending provisions related to years after that. It is not a law and is not binding, but puts in place caps on the spending that Congress appropriates each year, sets targets for tax and spending changes and includes certain procedural changes that make it more likely Congress will meet these goals.

Tax Cuts Extended for All but the Rich

For example, the budget resolution allows Congress to reduce revenues by a certain amount by extending the Bush income tax cuts. It is understood that the amount of revenue-reduction allowed would be sufficient to extend the Bush tax cuts for those with incomes below $250,000. It also allows for Congress to reduce revenues by preventing the Alternative Minimum Tax (AMT) from expanding as it is scheduled to under current law. Similarly, it allows Congress to extend the estate tax rules in effect in 2009 instead of allowing the estate tax to revert to the rules put in place during the Clinton years, before Bush's cuts in the estate tax were enacted.

The resolution allows for Congress to enact these tax cuts without finding new revenue to pay for them -- on one condition, which is that Congress enacts a statutory pay-as-you-go (PAYGO) rule that will (in theory) prevent Congress from enacting any more legislation that will increase the deficit. That means that any additional tax cuts (say, an extension of the Making Work Pay Credit that was enacted for two years as part of the economic stimulus package) would have to be combined with revenue-raising provisions to offset the costs.

Predictably, allies of former President George W. Bush have expressed horror that Democratic leaders and President Obama wish to extend the Bush tax cuts for 97.5 percent of Americans rather than 100 percent. The Democrats and the President would allow the Bush tax cuts to expire for singles with incomes over $200,000 and married couples with incomes over $250,000 (which make up roughly the richest 2.5 percent of taxpayers).

For their part, House Republicans used the budget debate to demonstrate to the public just how lopsided the tax code would be if their goals were ever realized and just how much government would have to shrink because of the revenue losses that would result. Earlier this month, the ranking Republican on the House Budget Committee presented his tax and spending plan which would cut and privatize Medicare, convert Medicaid into limited block grants to states, repeal the recently enacted economic stimulus law and deeply cut the relatively small amount of government spending devoted to non-military, non-mandatory programs.

Citizens for Tax Justice published a report concluding that under this GOP plan, over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes than they would under the House Democratic plan in 2010, while the richest one percent of taxpayers would pay $75,000 less, on average.

Final Budget Leaves Out the Senate's Outrageous Estate Tax Cut

Progressives scored a victory when Democratic leaders agreed to exclude from the final budget an amendment adopted by the Senate during its budget debate on April 2 which would slash the estate tax to benefit multi-millionaires. Before the Senate approved this amendment, Majority Leader Harry Reid (D-NV) said, "It is so stunning, so outrageous that some would choose this hour of national crisis to push for an amendment to slash the estate tax for the super wealthy." His common sense view carried the day as negotiators hammered out the final resolution.

The tax cuts enacted under President Bush in 2001 scheduled a gradual repeal of the estate tax, with the amount of assets exempted from the tax gradually increasing over a decade and the tax rate on estates gradually dropping until the estate tax would disappear entirely in 2010. Like almost all of the Bush tax cuts, this cut in the estate tax expires at the end of 2010, meaning that rules scheduled under President Clinton would come back into effect in 2011.

The budget resolutions passed out of the House and Senate budget committees in March both assumed that the estate tax rules in place in 2009 would be made permanent, meaning the Bush estate tax cut would be partially made permanent but the estate tax would not disappear entirely in 2010. The Center on Budget and Policy Priorities released a report finding that about 99.7 percent of estates would be untouched by the tax under this proposal.

Incredibly, 51 Senators voted in favor of the amendment offered by Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) to cut the estate tax even more than this. The 2009 estate tax rules exempt the first $7 million of assets passed on by a married couple (as well as assets they leave to charity) and tax the rest at a rate of 45 percent. The Kyl-Lincoln amendment called for a $10 million exemption for married couples and a 35 percent rate.

Taking Steps Towards Enacting the President's Priorities

Progressives scored another victory in the area of health care. House and Senate leaders decided to include in the final budget resolution a mechanism known as "reconciliation" which will allow the Senate to enact health care reform and higher education loan changes with a simple majority vote.

The practice of filibustering legislation in the Senate has, over the years, turned into a default rule that three fifths the Senate's members must agree to pass a bill. This means that legislation supported by Senators representing a majority of Americans is often blocked. Many advocates fear that this is exactly what could happen to health care reform and many other of the President's important initiatives.

Reconciliation is a way around this obstacle. A budget resolution can include reconciliation instructions specifying that committees will pass legislation that can then pass the full House and Senate under a streamlined process. In the Senate, that streamlined process means that the bill can be passed with just 51 votes.

The particular version of reconciliation included in this budget is optional, meaning Democratic leaders will resort to using it only if bipartisan consensus proves elusive.

Several Republican Senators, and some Democratic Senators, have taken the view that majority rule is undemocratic, and have called reconciliation a partisan ploy to "ram through" the President's agenda. (The idea of the Senate moving too quickly is a little hard for any Hill observer to understand.) More importantly, enacting health care reform will require Congress to raise a great deal of revenue, and finding a large bipartisan majority for that might be a challenge.

Finally, some have complained that reconciliation is only to be used for deficit-reduction, but this is entirely unconvincing because these are largely the same members who voted in favor of reconciliation bills during the Bush years that actually increased the deficit by cutting taxes.

On Wednesday, Rep. Jim McDermott (D-WA), Chairman of the House Ways and Means Subcommittee on Income Security and Family Support, introduced the Sensible Estate Tax Act of 2009. The bill would result in an estate tax that is more progressive than what either the Obama administration or Republican leaders have proposed. It would exempt the first $2 million in assets in an estate per person, or $4 million for a married couple. It would impose a 45 percent estate tax on the taxable amount of an estate up to $5 million, 50 percent on the taxable amount between $5 and $10 million and 55 percent on the taxable amount in excess of $10 million.

Under current law, the estate tax is scheduled to disappear in 2010 and then reappear in 2011 at pre-2001 levels (meaning a $1 million per-spouse exemption and a top rate of 55 percent). President Obama's budget blueprint proposed to make permanent the 2009 rules which include an exemption of $3.5 million per spouse and a top rate of 45 percent.

The McDermott bill would index the exemptions for inflation and includes other significant changes. It would make the exemption portable (meaning that one spouse could also use the other spouse's exemption), and it would reunify the gift and estate taxes. (Under current law and the administration's proposal, the gift tax exemption would remain at $1 million.) The McDermott proposal would, importantly, bring back the credit for state estate taxes, which is a source of revenue for the states.

The Joint Committee on Taxation estimates that the McDermott proposal would cost $202.8 billion over ten years (compared to current law), about 20 percent less than the President's estate tax proposal, which is estimated to cost $256 billion over ten years.

Estate taxes affect less than one percent of Americans. In 2007, when the estate tax exemption was at the $2 million level that McDermott proposes to make permanent, only 0.7 percent of estates were liable for the tax.

The U.S. House of Representatives and the U.S. Senate both approved budget resolutions on Thursday that move Congress a step closer to enacting President Obama's agenda, without being quite as bold or explicit as the budget outline released by the President in late February. Both resolutions would spend about $3.5 trillion in 2010 and include non-binding, but important, provisions affecting spending and revenues in years after that. As lawmakers from both chambers leave Washington for their spring recess, behind-the-scenes negotiations will likely pave the way for a House-Senate conference to take place upon their return to iron out the differences between the two resolutions. On some key issues like estate tax and health care, the House has made wiser choices that will hopefully be maintained in the final budget resolution.

The basic thrust of many of the tax policies embodied in the budget resolutions mirror the President's proposals. Both assume the extension of the Bush income tax cuts for everyone except taxpayers with incomes above $200,000 (or $250,000 for married couples). Taxpayers above these thresholds are affected by the top two income tax rates, which would revert to 36 and 39.6 percent. Both resolutions would extend the "AMT patch," a measure that increases the exemptions from the Alternative Minimum Tax to ensure that most taxpayers are not affected by it. (The chambers differ on the extent to which the costs of the AMT patch will have to be offset with revenue-raising measures in the future.)

The resolutions do not follow the President's proposals on certain issues. For example, President Obama proposed that the income tax cuts aimed at working families and included in the recently-enacted stimulus bill be made permanent. The resolutions would make some of these permanent, like the expansion in the child tax credit and the American Opportunity Tax Credit for higher education.

But they would not make permanent the Making Work Pay Credit, one of Obama's signature tax policies. Neither do they include any specific language to create a "cap and trade" program to reduce greenhouse gas emissions, which, in the President's proposal, would produce the revenue needed to offset the costs of the Making Work Pay Credit and other energy initiatives.

Similarly, the resolutions do not include language laying out how Congress will pay for health care reform. (The President's budget outline included a reduction in the benefits of itemized deductions for the rich to partially fund health care reform.)

None of this means that Congress will not act on these proposals of the President's. The resolution includes language allowing for deficit-neutral legislation in these areas without specifying how money will be spent or how it will be raised.

Congress's next important test involves settling the differences between the House and Senate resolutions. When it comes to revenues raised to pay for health care or revenues raised from the estate tax, hopefully the choices made by the House will be maintained in the final budget resolution. See the following Digest articles for more.

Estate Tax: Senate Approves a Break for Millionaires that Leader Reid Calls "So Stunning, So Outrageous"

Reconciliation for Health Care Reform: House Moves to Stop Senators' Obstruction of Measures with Majority Support

House GOP's Alternative Budget: Poor Pay More, Rich Pay Less, Stimulus Repealed and Government Shrinks

The tax cuts enacted under President Bush in 2001 scheduled a gradual repeal of the estate tax, with the amount of assets exempted from the tax gradually increasing over a decade and the tax rate on estates gradually dropping until the estate tax would disappear entirely in 2010. Like almost all of the Bush tax cuts, this cut in the estate tax expires at the end of 2010, meaning that rules scheduled under President Clinton would come back into effect in 2011.

The budget resolutions passed out of the House and Senate budget committees last week both assumed that the estate tax rules in place in 2009 would be made permanent, meaning the Bush estate tax cut would be partially made permanent but the estate tax would not disappear entirely. The Center on Budget and Policy Priorities released a report this week finding that about 99.7 percent of estates would be untouched by the tax under this proposal.

Incredibly, 51 Senators voted to approve an amendment offered by Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) to cut the estate tax even more than this. The 2009 estate tax rules exempt the first $7 million of assets passed on by a married couple (as well as assets they leave to charity) and tax the rest at a rate of 45 percent. The Kyl-Lincoln amendment puts the Senate on record as supporting a $10 million exemption for married couples and a 35 percent rate.

Before the Senate approved this amendment, Majority Leader Harry Reid (D-NV) said, "It is so stunning, so outrageous that some would choose this hour of national crisis to push for an amendment to slash the estate tax for the super wealthy."

Remarkably, both the Republican Senators and the "moderate" Democratic Senators who voted for this expanded break for families with millions of dollars to pass on to their heirs were largely the same Senators who claim to be concerned about budget deficits and the costs of the President's proposals to help working families.

The actual consequence of the amendment is unclear for several reasons. First, the amendment was written to be "deficit-neutral," meaning that if Congress wants to pass actual legislation to cut the estate tax, they would have to find a way to raise enough revenue to replace those billions lost. Some of the Senators who voted for the amendment would oppose a cut in the estate tax if it is deficit-financed (which any estate tax cut is likely to be). Second, the Senate then adopted (by a vote of 56 to 43) a confusing amendment creating a point of order AGAINST any estate tax cut if the Senate did not also provide some new tax cut, costing the same amount of money, for people earning less than $100,000. Whether that condition could be met is an open question.

Sorting through this confusing jumble of stated intentions and caveats will hopefully become unnecessary. The conferees crafting the final budget resolution should leave out the Senate's ludicrous cut in the estate tax.

When anti-tax activists and lawmakers complain that Congress and the President are pursuing policies that will cause taxes to be too high, the first question anyone should ask is: Compared to what? What exactly is the alternative to allowing the Bush tax cuts to end (at least for the rich) and finding new ways to raise revenue?

This week the House GOP showed us what the alternative is and it's frightening. On Wednesday, the ranking Republican on the U.S. House of Representatives' Budget Committee, Congressman Paul Ryan (R-Wisc.), released a budget plan which he argues is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions approved by both chambers last night. His proposal is apparently an update of the plan that House GOP leaders introduced last week and is different in some key respects.

The revised House GOP budget plan would move towards cutting and privatizing Medicare, convert Medicaid into limited block grants to states, and even cut Social Security benefits for some retirees. The plan would deeply cut the relatively small amount of government spending devoted to non-military, non-mandatory programs by refusing to adjust the budgets of these programs for inflation and population growth for five years. The House GOP plan would repeal the recently enacted economic stimulus law (the American Recovery and Reinvestment Act of 2009, or ARRA) a year before its expiration at the end of 2010.

A report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the House Democratic plan in 2010, and finds that:

• Over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes under the House GOP plan than they would under the House Democratic plan in 2010.
• The richest one percent of taxpayers would pay $75,000 less, on average, in income taxes under the House GOP plan than they would under the Democratic plan in 2010.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the Democratic plan, would cost over $225 billion more than the Democratic plan's income tax policies in 2010 alone.

Read the report.

Yesterday, the ranking Republican on the U.S. House of Representatives' Budget Committee, Congressman Paul Ryan (R-Wisc.), released a budget plan which he argues is a more fiscally responsible alternative to the budget outline proposed by President Obama and the similar budget resolutions working their way through the House and Senate right now. His proposal is apparently an update on the plan that House GOP leaders introduced last week and is different in some key respects.

A new report from Citizens for Tax Justice compares the income tax proposals in the House GOP plan to the income tax proposals in the House Democratic plan in 2010, and finds that:

• Over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes under the House GOP plan than they would under the House Democratic plan in 2010.
• The richest one percent of taxpayers would pay $75,000 less, on average, in income taxes under the House GOP plan than they would under the Democratic plan in 2010.
• The income tax proposals in the House GOP plan, which is presented as a fiscally responsible alternative to the Democratic plan, would cost over $225 billion more than the Democratic plan's income tax policies in 2010 alone.

Read the report.

This week, Citizens for Tax Justice updated its recent report on the tax proposals in the President's budget outline to include estimates of the proposals' impacts on different income groups in every state. The new state figures examine the proposed cuts compared to current law and also compared to the baseline that the Obama administration uses in presenting its budget figures. The figures show that, whichever baseline is used, the vast majority of families in every state will get a significant tax break.

Read the report. (State-by-state figures are in the final appendix.

On February 26, President Obama sent to Congress the blueprint for what could be one of the most progressive federal budgets in generations. The budget calls for national health care reform, expanded education funding, a program to reduce global warming, and several improvements in human needs programs. As a new report from Citizens for Tax Justice explains, it would make the tax code considerably more progressive, and close a number of egregious tax loopholes.

There is, however, a flaw in the budget proposal: It does not raise enough revenue to pay for public services. Instead, its net effect is to cut taxes dramatically.

Opponents of the President have attempted to argue that the budget proposal calls for tax increases that could sink the economy, but this complaint is plainly unfounded. President Bush and his allies in Congress were adamant that lower taxes would lead to an explosion of prosperity, and they enacted tax cuts in 2001, 2002, 2003, 2004 and 2006. Some allies of the former President argue that Congress is now insufficiently focused on tax cuts, but this view seems bizarre and incredible given the sad economic facts all around us.

Indeed, one might reasonably conclude that we could safely allow most of the Bush tax cuts to expire at the end of 2010, as they are scheduled to under current law, without any concern about how this will impact the economy. But President Obama actually proposes to keep most of the Bush tax cuts. Obama's largest proposed tax cut is to re-enact 80 percent of the Bush tax cuts that are scheduled to expire at the end of 2010. Most of this reflects re-enacting the Bush income tax cuts for married couples with incomes below $250,000 and others with incomes below $200,000 (or put another way, for about 98 percent of taxpayers), and permanently reducing the Alternative Minimum Tax (AMT). In addition, Obama proposes to re-enact close to half of the Bush estate tax cut.

On top of re-enacting most of the Bush tax cuts, the Obama budget includes a number of additional tax cuts for families and individuals. (These would be extensions of temporary tax cuts included in the recently passed stimulus law.) It also proposes some questionable business tax cuts.

Partially offsetting its tax-cut proposals, the Obama budget proposes some significant revenue-raising provisions. These include a cap-and-trade program to reduce carbon emissions, a limit on the benefits of itemized deductions for high-bracket taxpayers, and a number of corporate and high-income loophole-closing measures.

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On January 9th, Congressman Earl Pomeroy (D-ND) introduced a bill (H.R. 436) to retain the estate tax with a per-spouse exemption of $3.5 million, essentially freezing in place the estate tax rules in effect this year. The Obama campaign has favored a similar approach to dealing with the estate tax.

Under the first tax cut enacted by President Bush in 2001, the estate tax is being phased out gradually. Under current law, if a wealthy person dies in 2009, the first $3.5 million of their estate is not subject to the tax. That exemption was scheduled to increase gradually under the 2001 law, until 2010 when the estate tax is scheduled to disappear completely. Like almost all of the Bush tax cuts, these rules expire at the end of 2010, meaning that the estate tax will return in 2011 and the pre-Bush rules will apply (including a $1 million per-spouse exemption). Congressman Pomeroy's bill would therefore prevent the estate tax from disappearing in 2010, but would constitute a significant tax cut for millionaires in years after that.

In December, Citizens for Tax Justice issued a report using the latest estate tax data from the IRS showing why the Obama/Pomeroy approach would be a huge and unnecessary tax cut for extremely wealthy families. The report found that only 0.7 percent of deaths that occurred in the United States in 2006 resulted in estate tax liability. The per-spouse exemption that year was only $2 million, which means that the estate tax will affect even fewer families with the $3.5 million per-spouse exemption in place.

Rep. Pomeroy's bill would also repeal new "carryover basis" rules scheduled to be effective next year. Under current law, when you inherit property from an estate, the "basis" of that asset for income tax purposes is stepped up to its fair market value (FMV) on the date of death. When the estate tax is fully repealed in 2010, the stepped-up basis rules are also scheduled to be repealed. The new general rule will be that the basis of the property will carry over from the decedent. (An exception to this rule allows $1.3 million of property to be stepped up to FMV, and an additional $3 million is stepped up if the property is left to a surviving spouse.) H.R. 436 would repeal the new rules prior to their effective date.

It's true that the new carryover basis rules scheduled to come into effect in 2010 under current law are difficult for taxpayers and administrators. How can we figure out what Aunt Sarah paid for her G.E. stock that she's had for at least 30 years when we don't even know when she bought it (or if she received it as a gift or inheritance)? And what if she's been reinvesting dividends all these years (which increase the basis)? A similar rule was enacted by the Tax Reform Act of 1976, but was repealed before its effective date in 1980 because of the outcry from taxpayers and practitioners about the impossibility of complying with the statute.

The phase-out of the federal estate tax also continues to hurt state treasuries. Most states base their state inheritance tax on the federal system and many have lost significant revenues because of the federal changes, including the loss of the credit for state estate taxes. In his budget proposal last week, Gov. Baldacci of Maine included changes to Maine law that would impose a Maine estate tax computed under the pre-2001 federal and state rules. Gov. Sibelius of Kansas has proposed delaying the state's scheduled elimination of estate taxes.

Citizens for Tax Justice issued a new report this week showing that the percentage of deaths resulting in federal estate tax liability is less than one percent nationally -- and in most states -- and continues to fall. The report points out that President-elect Barack Obama's proposal to reduce the estate tax even further is therefore unnecessary.

Under the tax cut enacted by President Bush in 2001, the estate tax is being gradually reduced each year until it disappears entirely in 2010. But, like almost all of the Bush tax cuts, the gradual changes in the estate tax expire at the end of 2010. This means that if Congress simply does nothing, the estate tax will be repealed for one year in 2010 and then will return in 2011 in a form much closer to what existed at the end of the Clinton years.

President-elect Obama proposes to make permanent the estate tax rules that will be in effect in 2009 under current law, which includes a larger exemption than the one in effect today. Obama's proposal would be an improvement in the sense that it would prevent the estate tax from disappearing in 2010. But it would be a regressive and costly giveaway to the very wealthiest families in America, because it would mean that the tax would affect even fewer estates than it does now.

On Wednesday, Paul Ryan (R-WI), the ranking Republican on the House Budget Committee, presented a comprehensive tax and entitlement plan that would cut Social Security benefits, end Medicare as it's currently structured and attempt to simplify taxes by creating an optional income tax that one could choose in lieu of the current system. The plan follows a string of losses of formerly Republican-held House seats in special elections and a general sense that Republican members of Congress want to improve their message.

One part of the plan would replace Medicare benefits with a "payment of up to $9,500 - adjusted for inflation and based on income, with low-income individuals receiving greater support." Another part of the plan copies a Bush proposal to offer tax credits - $2,500 for individuals and $5,000 for families - to purchases health insurance. Perhaps most surprising is the part of the plan that essentially revives the prospect of diverting money out of Social Security to fund private accounts.

The tax reform part of the plan would go much further -- and cost much more -- than the Bush tax cuts. The estate tax would be abolished (at a cost of a trillion dollars over a decade) and the AMT would be eliminated (which would cost $1.5 trillion over a decade), and taxpayers would get to choose to file under either the current income tax or a "simplified" income tax with rates of 10% on income up to $100,000 for joint filers, and $50,000 for single filers; and 25% on taxable income above these amounts. The standard deduction and personal exemptions would be larger, totaling $39,000 for a family of four.

While many anti-tax lawmakers have suggested an optional simplified tax, it's not obvious how having two income taxes can be simpler than having just one. The most likely result is that people would calculate their taxes twice to see which system offers them less tax liability. And of course, the reason why the simplified version must be "optional" is that all lawmakers claim to support simplification but can't bring themselves to really close down the various loopholes that benefit certain pockets of voters (and campaign contributors) and which actually cause the complexity in the tax code.

Interest, capital gains and dividends would no longer be taxed. (Most of the benefits of the current capital gains and dividends tax breaks go to the richest one percent.) The corporate tax would be replaced by business consumption tax of 8.5 percent.

The plan would allegedly eliminate the federal budget deficit, in part with a provision that would require the OMB to make across-the-board reductions in discretionary and mandatory programs if spending rises above a certain percentage of GDP "but applies the reduction only to fast-growing programs, and is limited to no more than 1 percent of a program's spending." But given the magnitude of the tax cuts included in this plan, it's difficult to imagine Congress ever paying for them by reducing spending, which did not occur even when Rep. Ryan's party controlled the House, Senate and White House.

Citizens for Tax Justice has released a new report explaining that the budget resolution approved by the House of Representatives last week deals with tax policy in a more responsible way than the version approved by the Senate. The differences between the two resolutions must be ironed out by a House-Senate conference committee that will negotiate a final version to be approved by both chambers.

The resolution approved by the House offers more responsible tax provisions in a number of areas.

First, the House budget plan uses "reconciliation instructions" that would make it easier to pass a bill to provide relief from the Alternative Minimum Tax (AMT) without increasing the deficit. Any further increase in the national debt is likely to be borne, in the long-run, by the middle-class, so it would be unfair to take on debt to provide AMT relief, which mostly benefits families that are relatively wealthy. The Senate plan, unfortunately, does not use this approach because the Senate assumes that an AMT patch will be deficit-financed.

Second, the House plan does not emphasize cutting the estate tax the way the Senate plan does. CTJ's data shows that the estate tax now affects fewer than 1 percent of estates. The Senate decided, however, to cut the estate tax for these few, wealthy families and to finance this tax cut with surpluses that may never materialize.

Third, the House plan would not cut taxes on better-off Social Security recipients. Such a tax cut, which the Senate plan includes, would only benefit those seniors who are well-off.

The House-Senate conference committee that takes up the budget resolutions should reject the choices that the Senate has made with regard to taxes and choose the more responsible path set by the House of Representatives.

A new report from Citizens for Tax Justice shows that the federal estate tax continues to reach less than one percent of estates, despite the complaints of anti-tax activists that middle-class people are crushed by the so-called "death tax." In most of the states that are home to Senators who want to abolish the estate tax, the percentage of estates affected is particularly low.

Under the Bush tax cuts, the estate tax is scheduled to change to allow even more estates to escape federal taxation. In 2004 and 2005 estates worth up to $1.5 million (or $3 million for estates owned by a married couple) were exempt from the estate tax. (Most of the estates listed in the new report were subject to that exemption.) Since then, the exemption has increased to $2 million ($4 million for married couples) and in 2009 the exemption will increase to $3.5 million ($7 million for married couples). In 2010 the estate tax will disappear entirely. After 2010 all the Bush tax breaks expire, including this generous treatment of estates.

Some lawmakers want to make permanent the complete repeal of the estate tax, which would cost over a trillion dollars over a decade. As this data makes clear, that would benefit very few families with the biggest estates.