Obama: Mortgaging the Living to Save the Wealth of the Dead
At the start of his second term, events pushed President Obama to choose between the living and the dead. He chose dead millionaires over elderly people living on Social Security. The wealthy were given a most generous reduction in the estate taxes to be collected when they die. Social Security beneficiaries were told to live with smaller benefit checks. Instead of comforting the afflicted and afflicting the comfortable, Obama went the other way.
A more ambitious political leader would articulate and demand what he wants and what his party will insist on, regardless of whether it seems immediately achievable. Democrats are instead undercut by Obama’s sense of caution.
I asked Robert McIntyre, the celebrated reformer at Citizens for Tax Justice, what he makes of this odd presidential twist. “The Obama administration has mixed feelings about old people,” McIntyre dryly observed. “Old people on Social Security deserve smaller benefits. Old people who own estates worth tens of millions deserve smaller tax bills for their children.”
How could this have happened with a Democratic president in the White House? In early January, under pressure to make a “fiscal cliff” deal with Republicans, the president signed a new estate tax law that delivered a gorgeous windfall for those with accumulated wealth—or, rather, for their children or others who inherit the family fortunes. All rich people are now entitled to an estate-tax exemption of $5 million. That is seven times larger than the exemption that existed in the last years of the Clinton administration ($670,000) and more than double George W. Bush’s ($2 million).
Furthermore, because this new estate-tax exemption is indexed to protect against inflation, the exemption will keep growing bigger year after year. For 2012, the exemption rose by $120,000 and another $130,000 for 2013. That’s an annual inflation-driven increase of about 2.5 percent, though Social Security recipients received an increase of only 1.7 percent at the same time.
The new cost-of-living index Obama has proposed for Social Security would work in the opposite direction. It is designed to reduce Social Security benefits in future years, less than what people would get from the present calculation. The White House describes its so-called “chained CPI” as a technical fix that is good government policy.
Yet, taken together, these changes are a revenue loser for the government. The generous reductions in the estate tax will cost around $400 billion in lost revenue by not reverting to terms before the Bush II presidency worked to undermine it. The “chained CPI” fix for Social Security and other programs, including the estate tax exemption, is expected to save only about half as much as the estate tax loses—and those savings come not from the rich, but the broad ranks of working people.
Meanwhile, fewer than 4,000 very rich people will be left to pay the estate tax. This is not total victory for Republicans—they wanted to abolish the estate tax altogether—but it seems close enough. If you want to understand how the federal government drives the nation’s increasing inequality, look no further than the federal tax code.
The president is evidently having second thoughts of his own, at least about the rotten estate-tax deal he accepted. His new budget message promises to reopen that bad bargain and reinstate the estate tax exemption of $3.5 million that existed during his first year in office. Good luck with that one, Mr. President. It is hard to take his gesture seriously since the president proposes to restore the estate tax in 2018—two years after he has left office.
A more ambitious political leader would articulate and demand what he wants and what his party will insist on, regardless of whether it seems immediately achievable. Democrats are instead undercut by Obama’s sense of caution. Robert Greenstein of the Center on Budget and Policy Priorities, though supportive of Obama on the “chained CPI” issue, has wistfully cited an alternative remedy proposed by the late Robert Ball in his last years. Ball was a wise and trusted Social Security commissioner whom liberals relied on. He wrote that government could insure the permanent solvency of Social Security by raising the cap on the payroll tax deductions and by dedicating the revenue from the estate tax to keeping the Social Security trust fund in good health.
That connection between dead millionaires and retired working people could solve a lot of problems. It probably sounds too radical for Obama Democrats.
The president’s recurring problem is his softball style of governing. He begins negotiations by giving up his leverage—offering to retreat from the party’s crown jewels like Social Security or the strong estate tax Democrats traditionally defended. Then he asks Republicans to be reasonable and reciprocate. They respond by kicking him in the shins. Republicans play hardball, and with considerable success. Obama Democrats are playing badminton.
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