Support Rep. McDermott’s Sensible Estate Tax Act
(By Winning Progressive)
In his recent New York Times column titled Things to Tax, Paul Krugman sensibly argues that increased overall taxes must be a key component to any plan to deal with present and long-term deficit issues. Professor Krugman identifies two areas where taxes should be raised. The first is through creation of a financial transaction tax, or Tobin tax, which we have previously recommended here at Winning Progressive, both because it would help raise revenues and because it would help reduce the speculative gambling that has overtaken far too much of Wall Street.
The second area identified by Professor Krugman for raising additional revenue is restoring higher taxes for the wealthiest Americans. As Krugman notes:
The I.R.S. reports that in 2007, that is, before the economic crisis, the top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars. That’s a lot of money, and it wouldn’t be hard to devise taxes that would raise a significant amount of revenue from those super-high-income individuals.
One area where we should be looking for additional revenue is by restoring the estate tax to at least its 2001 level. The estate tax is a tax on the transfer of wealth at one’s death. In 2001, the estate tax rate was set at 55% with an exemption for the first $675,000 of the estate. There was also a 5% surcharge on estate value over $10 million. But then the George W. Bush Administration’s 2001 tax legislation gradually lowered the estate tax rate and increased the level of the exemption. By 2009, the estate tax rate was 45% and the first $3.5 million of the estate was exempted from any taxation. As a result, the number of estate tax returns fell from 108,000 in 2001 to less than 34,000 in 2009. A total of $21 billion in estate taxes were paid in 2009 on a total estates value of $194 billion, for an effective estate tax rate of 10.8%. And then in 2010, the estate tax disappeared entirely.
Had no action been taken the on estate tax, in 2011 and moving forward, the rates would have returned to the 55% tax rate from 2001 combined with the $1 million exemption level from 2002. Instead, as part of the budget compromise in December 2010, President Obama and Congress agreed to an estate tax rate of 35%, with an exemption of $3.5 million for an individual or $5 million for a couple as an extension of the W. Bush tax revenue reductions. While this compromise was far from ideal, it was also far better than the proposal of many Republicans to permanently eliminate the estate tax.
With the economy continuing to struggle, cutbacks to core government programs occurring, and the deficit still running high, more revenue is plainly needed, and an increase in the estate tax is a good way to get some of that revenue. The estate tax has two major things going for it:
- Fairness: The people who pay the estate tax are paying it on money that they did nothing to earn. If I had a rich relative who died and left me a $5 million estate, I would be extremely upset about their death, but I would not be upset that I received only $4.3 million after the estate tax, rather than $5 million. Taxes for core government services have to come from somewhere, and the estate tax is probably the fairest place for them to come from.
- Restoring Meritocracy: The estate tax is the most progressive and meritocratic tax in the country, as it impacts only the richest 1% of estates and helps prevent the perpetuation of wealth in wealthy families from generation to generation. Contrary to Republican myth, only approximately 80 small businesses and farm estates nationwide owed any estate taxes under the 2009 standards. With the income gap between the richest 1% and middle class Americans tripling between 1979 and 2007, it is critical that we restore the estate tax in order to help reduce that gap.
Fortunately, there is a proposal in Congress to restore the estate tax back to its 2001 rate and 2002 exemption level, adjusted for inflation. In particular, Rep. Jim McDermott recently introduced the “Sensible Estate Tax Act of 2011,” which would restore the 55% marginal tax rate and $1 million exemption for individuals ($2 million for couples). Such a proposal would generate approximately $236 billion from 2012 through 2019.
Rep. McDermott’s estate tax legislation has been endorsed by United for a Fair Economy, Responsible Wealth, Bill Gates Sr., and many others. Lend your voice and vote to the effort by:
* Calling your Congressperson and telling then to restore the pre-2001 estate tax levels to help reduce the deficit and protect critical government services from further cutbacks.
* Writing a letter to your local newspaper editor in support of the estate tax