Somebody is getting snookered.
The House has overwhelmingly
passed a proposal to repeal the federal
estate tax, and now the Senate will
most likely follow its lead. This is very
good news for the very rich.
Ronald Reagan couldn't get rid of
the estate tax. George Bush couldn't
kill it. But an unlikely alliance of Congressional Republicans, conservative
Democrats and a small but significant
number of very liberal Democrats,
including members of the Black Caucus in the House, is building a potentially veto-proof majority for this
breathtaking windfall for the wealthy.
What is going on?
After the bill passed the House by a
vote of 279 to 136, The Times, in an
editorial, said, "Seldom have so many
voted for a gargantuan tax cut for so
Estate taxes are overwhelmingly
paid by the wealthiest families in the
country. Very, very few Americans
pay any estate taxes at all. But if those
few could manage to get the tax lifted,
they would reap a bonanza. So a disinformation campaign, designed to
frighten middle- and working-class
Americans into believing their assets
will be devoured by the tax man rather than passed on to their survivors,
has been used to build support for the
repeal of the estate tax in its entirety.
In 98 percent of American deaths,
there is no estate tax liability. An
estate of any size can be bequeathed to
a spouse free of any estate tax. For
other bequests, a married couple is
currently entitled to a $1.35 million
exemption from the tax ($675,000
each), and that exemption will
increase to $2 million by 2006.
As the Center on Budget and Policy
Priorities reported last week:
"The vast bulk of estate taxes are
paid on very large estates. In 1997,
some 2,400 estates -- the largest five
percent of estates that were of sufficient size to be taxable -- paid nearly
half of all estate taxes. These were
estates with assets exceeding $5 million."
If the estate tax had been repealed,
the tax-cut windfall for those 2,400
estates would have averaged more
than $3.4 million.
The argument for repealing the estate tax carefully avoided the fact
that it would be an enormous boon for
people who were inheriting many millions of dollars. Instead the estate tax
was repeatedly characterized as a
threat to small family-owned businesses and farms. According to this
argument, it is necessary to repeal
the tax to ensure that these small
enterprises do not have to be liquidated to satisfy the demands of the tax.
The argument was wildly misleading. Only a tiny percentage of taxable
estates had any substantial small-business or farm assets.
Nydia Velazquez, a Democratic
congresswoman from Brooklyn who
voted to repeal the tax, wrote in an
Op-Ed piece in The Times that "the
reality for family-owned small businesses is that one-third will be forced
to sell or partially liquidate themselves to pay estate taxes on the owner's death."
She was wrong. Nothing remotely
close to one-third of such businesses
are even subject to estate taxes. So
the idea of families being forced to
liquidate them to satisfy the taxes is
Special tax breaks already exist for
small family-owned businesses and
farms, and additional tax relief can be
crafted for those enterprises that remain vulnerable. But the idea that
you have to get rid of the entire tax to
protect a very small number of businesses that account for only a tiny
portion of the tax makes no sense.
The measure approved by the
House would lead to an estimated
revue loss of $104 billion from 2001
through 2010. The Center on Budget
estimates that revenue losses in the
10 years after that will be half a
Repeal of the estate tax will face a
presidential veto. But one of the ironies of this peculiar fight is that the
votes needed to reach the two-thirds
majority to override could come from
some of the president's strongest allies.
Some black and Hispanic leaders
have bought into the argument that
the estate tax is a burden on ethnic
minorities. Harry Alford, president of
the National Black Chamber of Commerce, said repeal of the tax is essential "to protect our offspring from
being taxed after our transition to
Copyright 2000 The New York Times Company