THE BUSH ADMINISTRATION has made a big deal about repealing what it calls the ''death tax'' - the tax paid by large estates. Only about two percent of Americans are wealthy enough to leave estates subject to this tax. Repeal of the tax would cost the Treasury about thirty billion dollars a year, but by 2010 the cost could be nearly $60 billion a year, and rising.
Fully half the benefits of this tax break would go to the heirs of the wealthiest - one of every thousand people who die - people worth tens of millions of dollars.
However, there is another tax that really does harm the estates of moderate income people. The political scientist Michael Lipsky calls it the ''pre-death tax.'' This is the provision of the Medicaid law requiring middle class people to ''spend down'' their net worth to almost nothing before they can qualify for nursing home care, as paupers.
This provision is really outrageous. Middle income people work a lifetime and accumulate savings, often from the sale of a home. They may have total savings worth $200,000 or $300,000, or less.
Middle class people keep this money for retirement income to supplement Social Security, for the contingencies of old age, and hope to leave a little to their children. Note that this kind of estate is not subject to the current estate tax, which has an exemption of $675,000, which will soon rise to a million dollars under existing law.
But if you or a loved one has a medical condition that requires long-term nursing care, that estate is simply wiped out. Medicare, which covers every senior citizen, rich or poor, doesn't pay for long-term nursing care. Medicaid - the program for the very poor - does cover it, but first you need to get rid of your worldly assets. This ''pre-death tax'' requires you to pay for long term nursing care out of your own savings, and only then, when you are officially destitute, will Medicaid begin paying.
This policy is appalling under ordinary circumstances. But it is particularly galling at a time when the government has an immense budget surplus, most of which President Bush proposes to give away to millionaires with much larger estates than most of the people in nursing homes.
We ought to make long-term nursing care for those who need it a universal right under Medicare. If these were ordinary times, that would take a tax increase. But in these flush budgetary times, all it would take is a decision not to repeal the estate tax and a redirection of some of the surplus to nursing care.
Here are the numbers. About two million people are currently in institutionalized long term care, either in nursing homes or assisted living facilities. Another six million people require long term care at home, which they typically get from a combination of family caregivers and visiting nurses aides and nurses.
Nursing home care typically costs a resident about $60,000 a year, and it costs the country as a whole about $90 billion. In 1998, Medicaid paid just under half, and people paying out of pocket covered about one third. This ''spend-down'' of personal savings totaled about $30 billion in 1998 - the very annual amount proposed for estate tax relief.
In other words, we could entirely get rid of the pre-death tax on middle class people, if we simply chose not to abolish the estate tax on the wealthy. We could earmark proceeds of the estate tax for long term nursing home care for all, under Medicare.
Who is more deserving of relief? A multimillionaire, who President Bush thinks should be able to leave an estate tax free to heirs, or a middle class person in a nursing home compelled to get rid of virtually all assets before Medicaid will start covering costs? If the American public focused on this choice, the majority of us would prefer relief for the ''pre-death'' tax on the middle class.
Alternatively, we might create an asset exemption of, say $250,000. People requiring long term care would contribute their own assets on a sliding scale, until they reached that level of net worth; then the government would take over paying the costs. Requiring the upper middle class to pay some costs would conserve public funds, which could then be spent on other long-term care needs, such as home care, respite care, or assisted living.
How about it, Democrats? Can we trump Bush's death tax relief for multmillionaires with pre-death tax relief for middle class Americans? If that's not sensible budget politics, I don't know what is.
Robert Kuttner is co-editor of The American Prospect.
© Copyright 2001 Globe Newspaper Company