A new CTJ report shows that only 0.3 percent of deaths in the U.S. in 2009 resulted in federal estate tax liability. This provides a rough approximation of the impact that President Obama’s estate tax proposal would have, because the estate tax rules in effect in 2009 are the same rules that President Obama has proposed to make permanent. A more sensible alternative is the estate tax proposal announced yesterday by Congressman Jim McDermott.

Read the report.

A “study” claiming Congress can raise revenue by repealing the estate tax, which was criticized at length by Citizens for Tax Justice in 2009, has been updated to provide a “solution” for the budget deficit.

Anyone who is not familiar with tax debates might be wondering, quite reasonably, how repealing a tax could increase revenue. The answer is, of course, that it can’t.

One claim made in these reports, which are commissioned by the American Family Business Foundation, is that extremely wealthy people will simply spend away their fortunes if they know they will be subject to the estate tax after they die, but they will invest those fortunes if they know they will be untaxed after they die. In the latter scenario, their argument goes, the increased investment will boost the economy and result in increased profits and incomes, which in turn would lead to increased tax payments.

The reports ignore the fact that extremely wealthy people will save and invest most of their money in any event because there’s not much else they can do with it. In our 2009 report, we put the question this way:

Can extremely wealthy people really spend away their millions on expensive dinners and cruises? That’s a lot of dinners and cruises. In 2004 (the last year before the amount of estates exempt from the tax was increased), 72 percent of estate taxes were paid on estates worth more than $3.5 million. And 61 percent of estate taxes were paid on estates worth over $5 million… Let’s say you had this sort of money and you wanted to keep your estate 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.

This is just one of the many bizarre conceptual problems with the claims that estate tax repeal would result in increased revenue. For more, read the CTJ report.

The U.S. Senate voted last Thursday to repeal a tax break for the ethanol industry that cost $5.4 billion last year. Some observers interpret the vote as an indication that the grip of anti-tax ideologue Grover Norquist over Congress is loosening. However, Republican and Democratic lawmakers who have slavishly signed and followed Norquist’s so-called “Taxpayer Protection Pledge” will have to do far more to prove they can address our revenue shortfall in a serious and honest way.

The vote brought to a climax the months of sparring between Norquist and Senator Tom Coburn of Oklahoma over the idea of repealing tax expenditures as part of a compromise to reduce the deficit. 

Norquist’s Americans for Tax Reform (ATR) stated that even though it opposes ethanol subsidies, any repeal of the tax subsidy that was not offset with tax cuts represented a “a corporate income tax increase and therefore a pledge violation.”

The pledge in question is, or course, ATR’s so-called “Taxpayer Protection Pledge” which most Republicans and some Democrats in Congress have signed, swearing to forgo any tax increase until the end of time.

Once it was clear he was going to lose the vote on the subsidies (with 34 Republicans voting for the measure), Norquist tried to save face by claiming that a vote for repeal was not a pledge violation as long as it was coupled with a vote for South Carolina Senator Jim Demint’s amendment, which would eliminate the estate tax along with ethanol subsidies. This amendment, however, never even came up for a vote, forcing Norquist to shift again, saying that the defeat of the larger bill on which the ethanol language was attached means the pledge has not been violated.

South Dakota Senator John Thune of South Dakota, certainly no progressive on tax issues, described Norquist’s maneuvers as “a tremendous amount of gymnastics.”

One GOP aide opined in an interview with the National Review that 34 Republicans voted to tell Norquist to “take a hike” and “rejected his narrow and ridiculous interpretation of what the pledge means.”

But before anyone starts patting the pledge-signers on the back for being responsible, it’s worth remembering that an awful lot of them would have voted for the repeal of the estate tax, if that came up for a vote. The Tax Policy Center has projected that the estate tax will raise $487 billion over the coming decade, far more than was saved by repealing the tax subsidy for ethanol.

Of course no one can be blamed for being hopeful that lawmakers will realize that cutting government spending should include cutting government spending that is done through the tax code. Such a shift is long overdue. Tax expenditures have ballooned to over a trillion dollars annually and are not given the scrutiny that Congress applies to direct spending.

The vote may only be a fleeting setback for Norquist. As Washington Post commentator Ezra Klein notes, the fact that raising ANY revenue from repealing even the most egregious and minor tax breaks is considered a major concession shows just how influential Norquist and his anti-tax extremism have become. 

Photo via Gage Skidmore Creative Commons Attribution License 2.0

A minority of Senators made clear on Saturday that if the Bush tax cuts cannot be extended for the very richest taxpayers in America, then they will allow the tax cuts to expire for everyone.

Senate Republicans successfully filibustered a bill based on President Obama's tax plan to permanently extend the Bush tax cuts for the first $250,000 of income for married couples and the first $200,000 of income for unmarried individuals. The two percent of taxpayers with incomes above $250,000/$200,000 would therefore continue to enjoy part of the Bush tax cuts while the other 98 percent would continue to enjoy all of them.

Throughout months of debate over President Obama's tax plan, lawmakers and reporters often seemed to think that a person making one dollar over the $250,000/$200,000 threshold would lose all of the Bush tax cuts. CTJ's recent report shows this is entirely untrue. For example, it explains that married couples with incomes between $250,000 and $300,000 would only lose 1 percent of the Bush tax cuts, on average, under the Democratic tax plan.

The bill, introduced by Finance Committee Chairman Max Baucus, would also have allowed the estate tax to come back into effect but only at the levels that existed in 2009, with an adjustment for inflation. The bill would also have made permanent expansions in refundable tax credits for low-income families that were included in the economic recovery act enacted last year. Emergency unemployment insurance (UI) benefits, which recently expired, would have been extended for one year under the bill.

Unlike nearly every democratic institution on Earth, the Senate cannot approve anything without a super-majority of three-fifths of the chamber's votes. Democratic leaders were able to muster 53 votes for the tax bill, seven short of the 60-vote threshold to overcome a filibuster.

Voting with the Republicans were Joe Lieberman (D-CT), Ben Nelson (D-NE), Joe Manchin (D-WV), Jim Webb (D-VA), and Russ Feingold (D-Wisconsin). Unlike the others, Feingold made it clear that he voted against because he believed that this bill to extend tax cuts entirely for the first $250,000/$200,000 of income is simply too expensive.

The Senate held a second vote on a proposal introduced by Senator Chuck Schumer (D-NY) that was the same plan except that the tax cuts would be made permanent for the first $1 million of income. Republicans and Senator Lieberman voted against this bill also, but were joined by some progressive Democrats who believed that the $1 million threshold was too high.

"A minority of Senators are saying that the chamber must extend tax cuts for the extremely rich, or else low-income and middle-income families will lose their tax cuts, and people who are jobless through no fault of their own will receive no more help," said Bob McIntyre, director of Citizens for Tax Justice. "Even a proposal to extend the tax cuts for the first $1 million of income is not enough to satisfy this minority of Senators. Their disregard for working class Americans and their blind loyalty to multi-millionaires would be hard to believe if they were not on full display this weekend."

The American Family Business Foundation, which was founded to promote repeal of the federal tax on the estates of millionaires, is at it again. AFBF, you may remember, commissioned two outrageous "studies" last year on the alleged economic benefits of repealing the estate tax, which provided the amusing subject of our report, Caviar, Cruises and Cocaine.

After the publication of our most recent estate tax report, which includes state-by-state figures, AFBF wrote in its blog that the "latest lies in the death tax debate comes disguised as a statistical study offered by a group called Citizens for Tax Justice."

"Research" that Assumes Government Collects Money and then Burns It

First off, AFBF says that it's misleading for us to say just how few deaths result in estate tax (just 0.6 percent in the most recent year for which data are available) while ignoring the broader economic impact of the estate tax, which AFBF says "reduced overall capital in the economy by $847 billion over a ten-year period."

Actually, the report they cite seems to say that $847 billion is the amount by which the estate tax has reduced capital during the entire time the tax has existed, since 1916. But putting that aside, keep in mind this figure came from the Congressional Joint Economic Committee (JEC) in 2006. Unlike the GAO, CBO, Congressional Research Service or the Joint Committee on Taxation, the JEC is not a non-partisan entity. It has a Democratic staff and a Republican staff who issue completely different (and conflicting) reports. This report was issued by the Republican staff when that party was in the majority.

The 2006 JEC study, using the methodology of a previous study but with updated data "estimates that the estate tax has reduced the stock of capital in the economy by approximately $847 billion, or 3.8 percent."

As is typical with "research" of this genre, it is assumed that the estate tax takes resources out of the economy and that those resources simply disappear. If you account for the economic cost of taxes but ignore that positive benefits of government spending in the economy, then obviously the only possible conclusion is that the tax in question shrank the economy.

In other words, these studies assume that the government collects taxes and does absolutely nothing with the revenue. In reality, tax revenue is pumped back into the economy as government spending, and most or much of it (and people will disagree on how much) is spent on investments that actually boost our economic growth. Education provides a productive workforce, roads make commerce possible, public safety and national defense ensure that your property in the U.S. won't be stolen or seized by anyone inside or outside this country. Even a federal program like Social Security that supports consumption at least pumps dollars back into the economy, which provides some benefit to businesses.

If the estate tax was repealed, some of these public services would have to be cut sooner or later to make up for the lost revenue, and the logical result could be less capital formation over time — perhaps a reduction much larger than the 3.8 percent reduction that the estate tax is claimed to produce.

Questionable Use of Data

AFBF argues that the broader economic impact is clear from research showing that repeal of the estate tax would "increase small business capital stock by $1.6 trillion and create 1.5 million jobs."

The study they cite is a February 2009 report from Douglas Holtz-Eakin and Cameron T. Smith, and it's one of the "studies" we felt compelled to refute in our Caviar, Cruises and Cocaine report. Here's what we said about this $1.6 trillion figure then:

There are more examples of how their analysis is extremely sloppy or just intentionally misleading. For example, Holtz-Eakin and Smith give us this gem:

"In 2004, individuals reported a total of $10.2 trillion in wealth on estate tax returns. Eliminating the estate tax would raise the wealth reported on estates by over $1.6 trillion."

First of all, if the estate tax is repealed, there will be no reason for anyone to report any estate value to the IRS so the “wealth reported on estates” will drop to zero.

But putting that aside, individuals did not report a total of $10.2 trillion on their estate tax returns in 2004. Actually, in 2004 individuals reported a total of less than $0.2 trillion in net wealth on estate tax returns. The amount of wealth reported on taxable estate tax returns was only $0.1 trillion.

The $10.2 trillion figure is actually an IRS estimate of the total value of the net worth of Americans with assets of more than $1.5 million in 2004.  Almost all of these people were obviously alive in 2004, and their estates were not going to be taxed in any one single year.

Thus, the $10.2 trillion is more like an estimate of the value of wealth that existed in 2004 and that might, one day, be subject to the estate tax.

So when the authors go on to say that eliminating the estate tax would increase this wealth by $1.6 trillion, they presumably mean over a span of fifty years or longer, or however long it takes those who were millionaires in 2004 to die out.

It’s a little weird to speak about economic impacts in terms of half-centuries, but it’s certainly a way to avoid being called out when your predictions don’t pan out.

Compliance Cost for the Estate Tax Are Not Greater than the Revenue It Collects

Our recent report with state-by-state estate tax figures mentions that the effective estate tax rate for those 0.6 percent of estates that were taxable was 20.4 percent. AFBF takes issue with this because, they say, the only way wealthy people can use the deductions and credits that reduce or eliminate their estate tax is by "paying the bills for high-priced attorneys and estate planners." In fact, AFBF even claims that a former Clinton economic adviser found that the estate tax's compliance cost exceeds the revenue it collects.

A report from the Center on Budget and Policy Priorities discusses research finding that the total compliance costs of the estate tax, including collection efforts by the federal government and planning costs for individuals and families, comes to about seven percent of the total estate tax revenue collected, which is comparable to the compliance costs of other taxes.

One reason for misunderstanding about the compliance costs of the estate tax is that most of the costs associated with estate planning have nothing to do with the estate tax, and yet many people assume that avoiding the tax is the only purpose of estate planning. Anyone with any assets and who has any interest at all in controlling what will happen to those assets in the future and who will inherit them will do some estate planning. No one has suggested that the estate planning profession will disappear if the estate tax is repealed.

Misunderstanding Capital Gains Taxation

There seems to be some confusion about how capital gains are taxed on inherited assets. In our recent estate tax report, we pointed out that more than half of the value of taxable estates is capital gains income that has never been taxed. As we explained,

Most large estates include assets such as real estate, stocks or bonds. Any increase in the value of these assets is capital gain income that would be subject to the income tax if they were sold during the owner’s lifetime. However, this type of income is not subject to the income tax if the owner dies and leaves it to an heir. In other words, without the estate tax, a huge amount of income would never be taxed. Over half the value of inherited estates is capital gains income that has never been taxed.

AFBF responds in a way that seems to misunderstand tax law or simply miss the point:

This formulation is not true. Under capital gains tax law, assets which increase in value are taxed whenever they are sold. If an asset is not sold, it is not taxed – but neither does it provide a tangible reward to the owner.

For example, consider a family that passes a piece of expensive artwork between 4 generations, during which time the artwork substantially increases in value.

Is the art taxed?

Of course not. The family paid taxes on the income that purchased the art. If and when they choose to sell the art and realize their profit, they will once again pay taxes.

Our point was that if your grandfather bought that art in 1920 (to stick with the art example) for $1,000 and then left it to you when he died in 2009 when it was worth $20,000, you would not have to pay income taxes on that gain of $19,000. But if your grandfather sold the art the day before he died, he would have to pay the income taxes on that gain of $19,000. By leaving it to you, your family avoids the income taxes on that capital gain. The estate tax is therefore not double-taxation on this income — which is most of the value of taxable estates.

The Estate Tax and "Small" Businesses

Our recent report also cited figures from the Tax Policy Center (TPC) on small businesses.

Late last year, the Tax Policy Center provided estimates that defined small business estates as those in which farm and business assets represent at least half of the gross estate and total no more than $5 million. Using this definition, it was estimated that only 100 farms and small business estates would have owed any estate tax this year if the 2009 exemption levels had been in effect.

AFBF cites its work that allegedly "refutes" this. First, AFBF simply disagrees about the definition of a small business.

The standard small business definition is 500 employees, though some small businesses can be as large as $175 million in gross assets and have over 1,500 employees, according to the Small Business Administration.

For people who have a business with, say, five employees, it probably comes as a shock to learn that when conservatives talk about "small business" they actually mean companies with 500 or even 1,500 employees. So much for the owner of an auto shop or corner grocery store.

Then AFBF again cites the JEC (Republican staff) report to claim that 115,000 small businesses paid the estate tax between 1996 and 2005. This is based on the number of estates with any amount of assets in any business that is not a "C corporation." That means that if a person has a stake in a company that is huge but not a business that pays the corporate income tax (say, the Tribune Company) and only has a tiny stake so that it makes up small portion of the estate, this person's estate is counted as a small business estate.

And of course, AFBF does not bother here to mention that the estate tax has been drastically cut back since the 1990s and that no one in Congress is considering allowing it to revert fully to the pre-Bush rules.

Misleading Use of Figures and One-Sides Analyses Hide Philosophical Opposition to Estate Tax

We could go on about the ways that AFBF has produced countless distortions about the estate tax but this is really beside the point. The only rationale for opposition to the estate tax is simply a deep-seated belief that society has no right to ask for more from the rich than it does from everyone else. We believe that the rich could not have made their fortunes if not for the protection of property, the facilitation of commerce and the countless other public services that taxes make possible, so it's reasonable for the rich to pay a little more in taxes. Others simply disagree.

It would be much easier to have this philosophical debate if our opponents did not hide behind supposedly complicated economic models that mystify the lay audiences who are unaware of their one-sidedness and their convoluted logic. It would be much simpler if our opponents simply told us why they think the rich should not pay more in taxes than anyone else.

Citizens for Tax Justice has updated its reports on the competing approaches to the Bush tax cuts to reflect the differences between S. 3773, the proposal introduced by Senate Republican Leader Mitch McConnell to make the Bush tax cuts permanent, and President Obama's proposal to make them permanent for all but the richest 2 percent of taxpayers.

CTJ has also, for the first time, added tables showing the percentage of taxpayers in each Congressional district who are rich enough to lose some portion of the Bush tax cuts under Obama's plan. The tables also show the percentage of taxpayers in each district who have adjusted gross income in excess of $1 million. About 80 percent of the revenue savings from Obama's plan would come from these taxpayers.

In case you don't have time to wade through all of these tables and figures, we'll give you the bottom line right now. In every Congressional district, only a small minority of taxpayers are rich enough to lose some portion of the Bush tax cuts under Obama's plan. The figure is less than 2% for a large majority of districts. It's over 5% in just 30 districts out of 436. Of course, the percentage of millionaires in each district is much smaller.

Read the report.

On Monday, Americans for a Fair Estate Tax, a coalition of faith-based groups, labor unions and progressive organizations that support a robust federal estate tax, sent to Senate offices a letter signed by seventy organizations, including CTJ, in support of the Responsible Estate Tax Act. This bill, which was introduced on June 24 by Senators Bernie Sanders, Sheldon Whitehouse, and Tom Harkin, would allow the estate tax to come back into effect with higher rates on the very biggest estates, which makes it a more progressive proposal than the one President Obama has put forward.

The 2001 tax legislation signed into law by President Bush gradually reduced the estate tax over several years until eliminating it entirely in 2010. Like all the Bush tax cuts, this repeal of the estate tax expires at the end of 2010, meaning the estate tax will return at pre-Bush levels if Congress does nothing. President Obama has proposed to make permanent the estate tax rules that were in effect in 2009, which would cut the estate tax in half (meaning it would cost half as much as full repeal). The Responsible Estate Tax Act would lose less revenue than Obama's proposal.

As we reported last week, United for a Fair Economy recently sponsored a teleconference in which several very wealthy Americans, including former Treasury Secretary Robert Rubin and Disney heiress Abigail Disney, urged Congress to restore the estate tax.

Several extremely wealthy Americans — those whose estates would likely be subject to the estate tax — have spoken out against Congress's failure to prevent the estate tax from disappearing this year. During a Wednesday teleconference sponsored by United for a Fair Economy, some very wealthy folks, including former Treasury Secretary Robert Rubin and Disney heiress Abigail Disney, urged Congress to restore the estate tax.

In his remarks, Rubin noted that "our country is on an unsustainable fiscal path" and that estate tax revenues could be used "to fund deficit reduction, additional public investment, or added assistance to those affected by the economic crisis." Billionaire hedge fund manager Julian Robertson said the economic and moral case for an estate tax was simple, calling on Congress to get the country's "house in order" and bringing the deficit down, which means tax increases. The fairest way to do that, Robertson said, is to tax "the least deserving recipients of wealth, which are the inheritors."

Following the death July 13 of Yankees owner George Steinbrenner, media reports have commented on the fact that the billionaire's heirs would be able to inherit the team free of estate tax. (The federal tax on the estates of millionaires has been repealed for one year in 2010.) Several stories have contrasted that result with the heirs of Miami Dolphins owner Joe Robbie and Chicago Cubs owner P.K. Wrigley, whose heirs reportedly sold the teams in order to pay the estate tax.

Those media reports say that the Robbie and Wrigley heirs had to sell the teams in order to pay the estate tax. But that isn't the real story.

To start, the sale of the Miami Dolphins had more to do with family infighting than taxes. Owner Joe Robbie left control of his estate (and the team) to three of his nine children. Not surprisingly, the other six didn't like how things were being run and filed a multi-million dollar lawsuit against the the executors. They reached a settlement designed to keep the team in the family "well into the 21st century," but the agreement soon fell apart and the heirs agreed to sell the team and split the proceeds.

The sale of the Cubs was not something that the heirs of owner P.K. Wrigley had to do. Four years after he died in 1977, the heirs sold the team, and this is usually reported as something they had to do to pay the estate tax. But there were any number of ways they could have paid the tax. The sale of the team raised only $20.5 million. The estate tax liability was estimated at $40 million which means that there was a net taxable estate of at least about $75 million. There were obviously other assets that could have been sold to pay the estate tax. The heirs chose to sell the team rather than any of the other estate assets, including any of their stock in the W. R. Wrigley, Jr. Company, the famous maker of chewing gum. (The company was acquired by Mars, Inc. for $23 billion in 2008, so we can bet the Wrigleys did pretty well.)

Remember that if a closely-held company (i.e., a company owned and run by members of the same family) makes up more than 35 percent of an estate, the tax code allows the related estate tax to be paid over 14 years. No heirs need ever sell the family business to pay the estate tax. In both of these cases, while the estate tax was a consideration, the teams were sold primarily for other reasons. The Wrigley and Robbie stories keep being trotted out mostly as a way for estate planners to scare their potential customers.

News reports that the Steinbrenner family has narrowly escaped a possible sale of the team to pay the estate tax are greatly exaggerated. The Steinbrenner estate, valued at $1.1 billion obviously has lots of assets with which to pay any tax. The estate probably also has the option of paying the tax over 14 years. So even if the estate tax is reinstated retroactively, we think it's safe to say the Steinbrenner family can keep the team if it wants to. Yankee fans can breathe a sigh of relief (or regret).

A Washington Post editorial earlier this week declared, "Senate Republicans, committed as they are to preventing the debt from mounting further, can't approve an extension of unemployment benefits because it would cost $35 billion. But they are untroubled by the notion of digging the hole $678 billion deeper by extending President Bush's tax cuts for the wealthiest Americans."

Well, that's a little unfair, because Congressional Republicans actually want to increase the deficit by a full trillion dollars by extending the Bush tax cuts for the wealthy.

The $678 billion is just the cost of making the Bush income tax cuts for the richest two percent of taxpayers permanent. (President Obama and Republicans agree that they should be made permanent for the other 98 percent.) Republicans have also been pushing for years to make permanent Bush's repeal of the federal tax on the estates of millionaires. This would add over $300 billion during the first decade when its costs would be fully felt, compared to Obama's more restrained (but still awfully generous) proposal to cut the estate tax.

As the Post explains, Senate Republican Whip Jon Kyl recently said that the cost of new spending should be offset, but the revenue loss from tax cuts should not. According to Talking Points Memo, Republican Senator Judd Gregg explained that new government spending is "growing the government" and therefore should be offset, presumably with cuts in spending, but tax cuts should not be offset.

Of course, deficit-financed tax cuts have to be paid for one day, and that could be done through tax hikes. Congressional Republicans might believe that Congress will be forced to shrink government when revenues decline, but that obviously didn't happen after the Bush tax cuts were enacted.

Senate Republicans Bring Back Supply-Side Economics

But the real prize for articulating their position goes to Senate Republican Leader Mitch McConnell. When asked about this, he replied, "That's been the majority Republican view for some time, that there's no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy."

That's right. The most powerful Republican alive believes that when Congress cuts taxes, the result is that revenues increase.

This is the extreme version of "supply-side economics." The basic idea behind this school of thought is that tax cuts can change incentives to invest so much that they result in huge economic growth, which results in increased incomes and therefore increased income tax payments that more than make up for the loss of tax revenue resulting directly from the tax cuts.

CTJ has already explored in great detail the empirical evidence against this idea, the people who promote it anyway, and the fiscal disasters that have resulted.

But don't take our word for it. President George W. Bush's own Treasury also concluded that tax cuts do not increase revenue or come close to paying for themselves.

Douglas Holtz-Eakin Contradicts McConnell

So have the Republicans obtained some new support for supply-side economics since then? Apparently not, since the Republican witness at Wednesday's Finance Committee hearing on the Bush tax cuts conceded that they did not pay for themselves.

Douglas Holtz-Eakin, former director of the Congressional Budget Office and an adviser to the presidential campaign of John McCain testified at the hearing in favor of making permanent all the Bush tax cuts (including those for the richest taxpayers). According to his written testimony (which he paraphrased during the hearing), making the tax cuts permanent would have a positive economic effect that would reduce the direct cost of the tax cuts by 22 percent.

We have no idea how he came to that figure. But Holtz-Eakin is the closest thing the Republicans have to a reasonable and credible economist who will promote their views. (Even though we think he's wrong about most of what he says, as we explained in the previous article.) Since Holtz-Eakin is the best economist the Republicans have on their side, one would think that Senator McConnell would get on the same page.

Yankees owner George Steinbrenner died last week, leaving a fortune estimated at $1.1 billion. He is the fourth billionaire to die this year — the only year since 1916 when there has not been a federal estate tax (it's currently scheduled to return in 2011). So even if the Yankees don't repeat as World Series champs, it's a very profitable year for the Steinbrenner family.

The opportunity to die without one's estate being taxed may disappear soon, however, as Congress appears finally ready to address the issue. On June 24, Senators Sanders (I-VT), Harkin (D-IA) and Whitehouse (D-RI) introduced estate tax legislation that would make permanent the $3.5 million exemption that was effective in 2009, with a progressive rate structure that would tax the taxable portion of estates over $10 million at 50 percent, over $50 million at 55 percent, and over $500 million at 65 percent. Yesterday, Congresswoman Linda Sanchez (D-CA) introduced the House version of this bill.

Earlier this week Senators Lincoln (D-AR) and Kyl (R-AZ) introduced their own estate tax legislation, which would reduce the rate to 35 percent and raise the exemption to $5 million ($10 million for couples).

Meanwhile, in the House, Representatives Thompson (D-CA) and Salazar (D-CO) have introduced estate tax legislation that would completely exempt farmland and would raise the exclusion for conservation easements to $5 million from its current $500,000. (See a report on all the reasons why this is a terrible idea.) One of the most alarming results would be that wealthy people start investing in farmland as never before, which could drive up prices for land and hurt genuine family farmers.

The Lincoln-Kyl proposal has been referred to the Senate Finance Committee with the pending small business jobs bill. Finance would need to find $80 billion in revenue offsets to cover the increased cost of their proposal compared to extending the rules in effect in 2009 (which is what President Obama proposes). Senators Lincoln and Kyl mask the true cost of their proposal by phasing in the cut in the estate tax over several years, meaning the $80 billion figure is misleadingly small.

With all the competing proposals and the lack of any clear consensus, it's anybody's guess where the estate tax will finally end up. But the estate tax holiday will soon be over.

On Wednesday, CTJ joined Americans for a Fair Estate Tax to voice opposition to an estate tax proposal that would benefit only the families with the largest 1 in 400 estates. In a strongly-worded letter, AFET said a reduction in the estate tax should not even be on Congress's agenda, much less be a priority.

News began to leak last week that a bipartisan group of Senators, including Senate Finance Committee Chairman Max Baucus (D-MT), Ranking Member Charles Grassley (R-Iowa), Blanche Lincoln (D-AR), and Jon Kyl (R-AZ) were negotiating a deal to weaken the estate tax even beyond the 2009 parameters that the president wants to make permanent. The deal would have eventually exempted up to $10 million per couple from the estate tax.

The proposed estate tax rules would cost the country billions of dollars per year, but a phase-in of the changes and other budget gimmicks, such as a prepayment option, would have masked the cost in the ten-year budget window that is counted when lawmakers consider legislation. A detailed report of the proposal can be found here.

News reports on Thursday indicated that the deal had begun to unravel. We hope the Senate will now turn its attention back to legislation creating jobs and helping ordinary Americans who are still struggling in this economic downturn.

National Organizations Urged to Join Statement

Americans for a Fair Estate Tax, a coalition of public interest organizations, has released a new statement calling on Congress to preserve a robust estate tax to help ensure that the federal government has the revenue to fund public services that working people depend on.

The statement calls upon Congress to exempt no more than $2 million per-spouse from the estate tax, and tax the taxable portion of estates (the portion in excess of the exemptions and deductions) at no less than 45 percent. It also calls for an additional 10 percent tax on the taxable portion of estates exceeding $10 million.

The tax cut law signed by President Bush in 2001 gradually shrank the estate tax over the course of several years before making it disappear altogether in 2010. But, like all the Bush tax cuts, this cut in the estate tax expires at the end of 2010, meaning the pre-Bush rules would come back into effect if Congress does nothing.

The intention of President Bush and his supporters was to avoid discussion of the true costs of permanent repeal of the estate tax at the time the law was voted on, and to set up a situation in 2010 in which some lawmakers could be pressured into making the repeal permanent.

Last year, the House of Representatives approved a bill that would meet Bush halfway, meaning it would lose about half as much revenue as permanent, full repeal. The House bill would permanently set the per-spouse exemption at $3.5 million and the top estate tax rate at 45 percent. Americans for a Fair Estate Tax (AFET) is calling on Congress to preserve more of the estate tax by setting the per-spouse exemption at $2 million and applying an additional ten percent tax to particularly massive estates.

As the Bush estate tax cut phased in over several years, there was a period of years in which the exemption was temporarily set at $2 million per-spouse. Fewer than 1 percent of deaths resulted in estate tax liability during those years.

The AFET statement also calls on Congress to reinstate the credit for state estate and inheritance taxes, which was repealed in the 2001 law. This has been a blow to states with taxes tied to that credit at a time when their budgets are already in crisis.

If you are authorized to sign the statement on behalf of a national organization and wish to do so, please contact Steve Wamhoff at swamhoff (at) ctj.org.

The Senate finally passed a 30-day extension of unemployment insurance and health care benefits for the unemployed, but not before benefits had expired for hundreds of thousands of jobless Americans and thousands of others were furloughed from construction jobs as federal funding expired.  The legislation had been held up by Senator Jim Bunning (R-KY) who wanted to offset the costs of the bill, while other Republican Senators threatened to block the bill if they were not promised a vote on a measure to reduce the estate tax for millionaires. 
 
The President signed the 30-day extension into law on Tuesday evening, just hours after the bill had passed.

Senators then returned to legislation extending jobless benefits, as well as many expiring tax provisions, through the end of the year. The Senate took up a substitute amendment (S. Amdt 3336) for the House  "tax extenders" bill that was passed in December. The Senate version was expected to contain a reinstatement of the estate tax (which is temporarily repealed for 2010), but it was not included. However, many amendments to the bill are being offered and it's still unclear whether any will address the estate tax. President Obama and Democratic leaders want to reinstate the estate tax at the level in effect in 2009 (which was cut down about 50 percent from the pre-Bush level) while Senate Republicans and a few Senate Democrats wish to cut the estate tax even further.

Senate Republicans blocked action on aid for millions of unemployed Americans this week, and threatened to continue to do so unless Congress acts on a completely unrelated matter: the federal tax on the estates of millionaires.

The Need for Help for the Unemployed

Congress has an opportunity to help families hardest hit by the recession while at the same time increasing consumer demand, which in turn will increase the number of businesses that are hiring. The Congressional Budget Office has found that extending unemployment benefits is one of the most effective ways to increase consumer demand (i.e., create jobs), making it attractive from the standpoint of economic policy as well as compassion for struggling Americans. (There are 6 job-seekers for every open position right now.)

By the end of February, 1.1 million people are scheduled to lose their UI benefits, and another 2.7 million are scheduled to lose them by the end of March. Senate Democrats hoped to move by unanimous consent to extend UI benefits and COBRA health care benefits for out-of-work Americans for 30 days, to tide them over until a longer-term extension can make its way through Congress.

Help for the Unemployed Held Hostage for Tax Cuts for Millionaires

Senate Republicans denied the unanimous consent request to pass an extension of UI and COBRA. The objection was raised by Senator Jim Bunning (R-KY) over the source of funding. But the measure is apparently also being held hostage by Senators wanting to give multi-millionaires a break on the estate tax.

The tax law passed under President Bush in 2001 gradually repealed the estate tax over several years until making it completely disappear this year. But, since the Bush tax cuts expire at the end of 2010, the estate tax will return in 2011 in its pre-Bush form (with the tax exempting the first $1 million in assets, per spouse, and a top estate tax rate of 55 percent).

House Democrats decided last year that a million dollars just isn't what it used to be, and passed a bill that would permanently increase the exemption and lower the rate, but not let the estate tax disappear in 2010. (Technically, they passed a permanent extension of the estate tax rules in effect in 2009, with a $3.5 million per-spouse exemption and a top rate of 45 percent.) But the Senate failed to act on the measure.
 
Under the proposal approved by the House, fewer than one percent of deaths would result in estate tax liability. Apparently that's too many for Senators Jon Kyl (R-AZ) and Senator Chuck Grassley (R-Iowa), who have wanted to repeal the estate tax for years and now hope that they can at least reduce it much further than the Democrats want. They have indicated that, until a deal is reached on the estate tax, they will block passage of the UI and COBRA extension. On Feb 24, Kyl, a long-time leader against the estate tax, said that Republicans will block consideration of the legislation unless they get "a path forward fairly soon" to voting on a measure to permanently weaken the estate tax.

Bizarrely, Senator Bunning blocked the unanimous consent motion for the $10.3 billion, 30-day UI and COBRA extension, saying he wanted the costs somehow offset, even while his Republican colleagues press for an estate tax measure that will cost hundreds of billions of dollars, with no hope of being offset.

Kyl and Grassley tried to cut a deal earlier this month with Senate Finance Committee Chairman Max Baucus (D-MT) to get a fast track for the estate tax vote in exchange for votes on a jobs bill, but Majority Leader Harry Reid (D-NV) rejected the package and put together a jobs bill of his own. That pared-down bill passed the Senate on Wednesday, including $16 billion in tax cuts for employers who hire new workers.
 
Another wrinkle is that Grassley and Kyl have reportedly been in discussions with Senator Maria Cantwell (D-WA) who has proposed to allow multi-millionaires to prepay their estate tax at a lower rate. This is clearly a accounting gimmick designed to mask the true cost of the estate tax change. It would bring some money into the Treasury during the 10-year budget window that Congress focuses on, but lose huge amounts of revenue in years after that. United for a Fair Economy has objected to the proposal in a letter to Senator Cantwell. Washington residents are urged to sign on to the letter.

Coalition Calls for More Robust Estate Tax than Approved by House Democrats

Congress needs to move in a different direction on the estate tax. Americans for a Fair Estate Tax, a coalition of organizations including Citizens for Tax Justice, has issued a call for an estate tax that exempts no more than $2 million in assets per spouse, and taxes the taxable portion of estates at a rate of at least 45 percent, with an additional 10 percent on assets in excess of $10 million. Only about 0.7 percent of deaths resulted in estate tax liability in recent years when the per-spouse exemption was set at $2 million.

Cutting the estate tax any more than this — particularly when Congress seems to have so much trouble helping the Americans who are struggling the most — would prove that Congress really does have its priorities completely backwards.