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Posted at 4:34 PM ET, 12/15/2010

House Democrats should go big on the estate tax or stay home

By Ezra Klein

The House Democrats are pushing to amend the estate tax deal in the compromise -- which may blow up the whole deal. That sort of risk might be worth it for a major amendment to the policy, but that's not really what the House is offering up here.

There are basically three versions of the estate tax on the table. If we do nothing, it'll exempt the first $1 million of estates and tax the value above that at 55 percent. That would affect 2 percent of estates and raise about $700 billion over the next 10 years. The version in the tax deal -- also known as the Lincoln-Kyl rates -- would exempt $5 million and tax the rest at 35 percent. That'd affect 0.25 percent of estates and raise closer to $300 billion.

And then there's what House Democrats are fighting for: A $3.5 million exemption and a 45 percent tax rate. Chris Van Hollen calls this "the common sense compromise," but it really isn't. It's the same level as the Bush tax cuts set in 2009. It would raise about $400 billion and affect 1 percent of estates. It's much closer, in other words, to the Republican vision than to what'll happen if we do nothing.

I could see the argument for getting the estate tax back down to its 2001 levels. The rich have gotten richer since then, and their taxes have gone lower. But I can't see the argument for blowing up the tax deal over the difference between George W. Bush's 2009 rates and the Lincoln-Kyl rates. Over the next two years, the difference between those bills is $10 billion. If House Democrats are willing to risk the whole deal to fix the estate tax, they should actually fix the estate tax. Simply affirming the Bush rates isn't worth it and is arguably worse than just taking a hardline on the necessity of the 2001 levels when the Lincoln-Kyl levels expire in 2012.

By Ezra Klein  | December 15, 2010; 4:34 PM ET
 
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Comments

This is a big improvement over Ezra's earlier powder-puff non-expose expose. Given their own very weak proposal, House Dems are involved in a big honking con, directed at us gullible liberals and enabled by know-nothings like Rachel Maddow.

Repeat: This con is aimed at us gullible liberals, who don't understand how weak the House Dems' proposal actually is.

Posted by: bobsomerby | December 15, 2010 4:56 PM | Report abuse

Ezra, what do you think of yesterday's Op-Ed in the NYT that suggested taxing inheritance as income instead of an estate tax:

"Few Americans may realize that money received by gift, inheritance or life insurance is entirely free from income taxes. Of course, this made sense when there was a strong estate tax. But there is no other reason inherited wealth should not be taxed the same as wages, lottery winnings and all other forms of income. ...

"If inherited wealth was taxed as income, exemptions could still be provided for smaller estates — up to $500,000 or even $1 million. And taxes on inherited family farms and businesses could easily be deferred, if need be, until they were sold.

"Most important, by imposing the tax directly on those who receive the money, Congress could have a more honest discussion regarding the appropriate taxation of inherited wealth."

It sounds plausible to me, but I'm not a wonky type.

Posted by: LADemocrat | December 15, 2010 5:00 PM | Report abuse

Democrats are not monolithic. Some have made it clear that they want the deal to die. Some think they can get a better deal. And some are probably just mad that they weren't involved in the process. It's natural that these groups cooperate: those who want to blow it up (many) will throw their support behind any amendment that might throw a wrench in the works. the blow-it-upers just have to be very convincing to the we-can-get-a-better-dealers that they too are totally confident that an amendment won't blow the whole thing up and be a political embarassment.

Posted by: eggnogfool | December 15, 2010 5:14 PM | Report abuse

If an estate tax is going to exist, it should start at $10k.

Posted by: krazen1211 | December 15, 2010 5:14 PM | Report abuse

If the Democrats were smart (I know, not likely), they would offer an amendment to eliminate the estate tax entirely as long as the stepped up basis is eliminated as well.

They could frame it as treating estates the same way as gifts from living people are treated now.

http://www.irs.gov/businesses/small/article/0,,id=108139,00.html

http://www.irs.gov/businesses/small/article/0,,id=108143,00.html

Posted by: jnc4p | December 15, 2010 5:15 PM | Report abuse

"...what do you think of yesterday's Op-Ed in the NYT that suggested taxing inheritance as income instead of an estate tax..."

Wasn't the income tax already paid on that inheritance once, already?
Why stop at taxing it twice? Why not three or four times?

Posted by: WrongfulDeath | December 15, 2010 5:15 PM | Report abuse

excellent point ezra. which is another reason why I think they should do this instead:
amend the bill to restore what they passed in the first place--PERMANENT tax cuts on income below $200,000/$250,000. Don't touch the estate tax, or the tax cuts on the high end. I think that's the smartest, most obvious, least objectionable change. (Getting help for the 99ers would be even better, but I think impossible.) This change would get no House Republicans, but Pelosi very likely could get enough Dems onboard--they just passed the permanent middle-class cuts two weeks ago with 234 votes. You'd lose some Dems because of the Obama-McConnell compromise, but I bet enough progressives would see the value of this strategy.
Essentially, you challenge the Senate, Dems and Republicans both, and the President to fight AGAINST permanent tax cuts for 98% of Americans--one of their most cherished core principles. More specifically, you challenge the President to finally engage in some no holds barred hardball with a half dozen of his former colleagues in the Senate.

The point of this being to salvage a crucial policy and political victory: decouplization of the tax cuts for all from those just for the rich. That would go a long way toward calming Dem fears of further capitulation in 2012.

Posted by: andrewlong | December 15, 2010 5:25 PM | Report abuse

Ezra, first of all politically House Dems do not have the votes for rolling the estate tax to pre-2001 levels. So they are trying to make the changes that they can make.

Secondly, $10 billion over 2 years is still way more than what is saved by the federal pay freeze.

Third, there would be no difference between blowing up a deal with a pre-2001 vote or a compromise vote. Either way, the deal would be blown. Where there *is* a difference though is that Senate Republicans have more pressure to *accept* the change if the change is only minor. Senate Republicans would be foolish to blow up the deal over a minor change to the estate tax with the whole American public watching.

Fourth, even if this vote is symbolism, symbolism sends a long term message to the White House and the Republicans -

House Dems have a much better strategy than you are portraying them to have in my opinion, Ezra. Speaking of strategy, have you considered that your "linking" idea contributed to letting the Republicans make the unemployment benefits hostages to pass the tax cuts? Unemployment might have passed separately without the linking, and then Democrats wouldn't have been so reluctant to vote against this deal. One thing you did turn out to be right about though, is that Obama appointing negotiators put a lot of anger on Obama for the outcome.

Posted by: jfung79 | December 15, 2010 5:28 PM | Report abuse

By all means, tax inheritances as regular income.

And then listen to the howls of the wealthy.

O'Bummer sold out the middle class so he could get his precious START Treaty done in the lame duck session and claim a political "win".

Thanks for NOTHING, O'Bummer.

Posted by: Benson | December 15, 2010 5:28 PM | Report abuse

@andrewlong "The point of this being to salvage a crucial policy and political victory: decouplization of the tax cuts for all from those just for the rich. That would go a long way toward calming Dem fears of further capitulation in 2012."

How would this be a victory? The Republicans will filibuster the changes in the Senate, and then simply introduce a new bill in the next Congress even less to the Democrats liking after blaming them for blowing up the compromise they worked out with Obama.

Posted by: jnc4p | December 15, 2010 5:30 PM | Report abuse

Ezra

Much better post than the earlier one.

I hope pelosi reads your blog.

Posted by: lauren2010 | December 15, 2010 5:33 PM | Report abuse

No WrongfulDeath, an income tax on inheritance would not be like taxing the same income twice. It is the same money, but different income, because the recipient of the income is a different person. Your argument here is even weaker than people whining about corporate double taxation. At least there there is an argument that the stockholder is an owner of the corporation too. Why should wealthy heirs get money for nothing? It is good for nobody. Andrew Carnegie -- "The parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and leads him to lead a less useful and less worthy life than he otherwise would."

Posted by: jfung79 | December 15, 2010 5:33 PM | Report abuse

Not to worry EZ, senate republicans have pushed as far as they will go and will whimper and whine before camera but in their heart will cave into to House Leadership and show little or no concern for voters who put republicans into House majority. After the cave in, senate leadership will stand side by side with President Obama and blame tea party

Posted by: browncow | December 15, 2010 5:38 PM | Report abuse

jnc4p: Yes we know that's the threat. The point is to challenge the threat. Pass this minor, very popular change in the House, and then challenge the conservadems, most of whom are FOR those cuts being made permanent, to vote against it. And to challenge Brown and Snowe and Collins to explain why it is that, even though they're *getting* their extension of tax cuts for the rich, PLUS a laughably low estate tax, they will blow all that up in order to DENY 98% of Americans the certainty and peace of mind of a permanent tax cut.

Posted by: andrewlong | December 15, 2010 5:48 PM | Report abuse

How much of other people's money does the government need? The money we make, keep, and ultimately pass on to our children in whatever form is NOT the property of any government, and will likely have already been taxed as income. This is our property. WE EARNED IT, not the government. Remember the Declaration of Independence? We supposedly have the right to life, liberty, and the pursuit of ____ ? Jefferson said "happiness", but the original idea was property. The Federal Government does not have the right to tax this AGAIN upon our deaths, and people need to jettison the erroneous concept that it does. Taking more upon a person's death, no matter the size of the estate, is a flagrant confiscation of property for the explicit purpose of wealth redistribution. If such thievery is allowed, then why should someone strive to improve the fortunes of him or herself in this society to then have your family kicked back down the ladder when you die? What is the incentive to take real risk(s) and work hard for many years when the accumulated results of those efforts are the purview of the Federal Government and not the chosen heirs of the person who earned that estate? None, zilch, zippo. It really seems that some in the Congress, other branches of the Federal Government, and most certainly the media / entertainment industry dream that we're living in the “ U.S.S.A “ where a red flag with yellow stars flies above the land as we goose-step merrily beneath. All hail The State!

Posted by: RHennigh | December 15, 2010 6:04 PM | Report abuse

everyone write their Congressman...

NO AMENDMENTS !!
TAKE THE DEAL !!!

for the unemployment benefits alone...if not for other reasons.

I am in the middle of reading the 74 pages of the bill.....it has alot of good stuff....

the estate tax was one section and the House went nuts on it....

Posted by: TheBabeNemo | December 15, 2010 6:18 PM | Report abuse

RHennigh:
Yes. It is definitely our money.
And, Simultaneously, it is somehow not our debt.

Posted by: grat_is | December 15, 2010 6:22 PM | Report abuse

Seems like you might be missing the point.

Namely, that they're adding an amendment that they think could actually get through the Senate.

Now, I haven't seen much publicly to indicate they could...but maybe they have more information than we do and it's something they think has a chance to get through.

Posted by: brandonsilverman | December 15, 2010 6:29 PM | Report abuse

"Why should wealthy heirs get money for nothing? It is good for nobody."

Because it's the wealthy person's money to distribute as he sees fit? Why should your kids get a toy for Christmas - what good does that do "society"?

The death tax reduces capital - both directly via the tax and indirectly via discouragement - and sends the cash to the government, largely to be used for current consumption?

"Andrew Carnegie -- "The parent who leaves his son enormous wealth generally deadens the talents and energies of the son, and leads him to lead a less useful and less worthy life than he otherwise would."

Great advice, taken voluntarily by many a wealthy person today - however, this does not suggest that the government needs to roll on in and make the decision on behalf of the parent at the barrel of a gun.

We should consider Krazen's proposal - start the estate tax at $10k, 55% rate. We could use the proceeds of taxes on the rich American middle class to help the poor in the third world. After all, what good is it to the world for rich Americans to leave money to their heirs?

Posted by: justin84 | December 15, 2010 6:50 PM | Report abuse

I guess the House's alternative proves that all tax cuts are permanent...

I think all income should be treated as income and taxed as income. Differentiating between realized capital gains, interest, inheritance, etc. only benefits the rich.

Posted by: will12 | December 15, 2010 6:52 PM | Report abuse

You realize that a million dollar exemption will only exempt a mere 125 acres of prime farm land at today's prices. That's not a big farm where most usually run 500-10,000 acres. That also doesn't include machinery, barns, buildings etc. A very small business easily has a million plus in inventory, equipment, buildings etc.

Democrats appear to be focused solely on taking from people who work hard all their lives. I know that we will be watching this closely to ensure that family members get what we worked for and the govt doesn't.

Posted by: Desertdiva1 | December 15, 2010 7:07 PM | Report abuse

F you Ezra, that's my money not yours. I worked hard for my money and will leave it to whomever I want. Keep your hands off.

Posted by: Jsuf | December 15, 2010 7:33 PM | Report abuse

@andrewlong has it right. This forces senate republicans to vote down a bill that cuts the taxes of the vast, vast majority of people because an extra .75% of wealthy estates will be taxed at a 45% rate of each dollar over 7 mill (the 3.5 mill deduction is passed to the surviving spouse so the children can get 3.5 * 2 tax free). I can't believe that even the disgusting, vile creatures that are the senate republicans would stoop so low.

and to all the staunch individualists that don't feel that the "government" has any claim on any of your sacred property, you are randoid idiots. Even from a practical perspective, how do you have property without the government?

The government (i.e. all of us together in what is called society) agrees to recognize your property privilege.

We could take all your stuff tomorrow. We all agree that giving you a right to stuff benefits all of us, but you don't get that for free. there is no such thing as a free lunch. take some personal responsibility and pay for everything that society makes possible.

we have a claim on some of your property. The democratic process allows our society to decide what we all will contribute to the common good. To say that the property we let you posses it is all yours and we, through our agent of collective action, the government, has no claim on your property is myopic, stupid, fundamentally selfish and deeply anti-American.

Posted by: efcdons | December 15, 2010 7:58 PM | Report abuse


ezra:

here's a virtual shovel, a gift from me.

please use it to dig yourself a hole... one large enough to accomodate your entire physical being.

then please crawl into it.. pull something over the opening to keep you warm.

and please stay there for a very, very long time.

nobody will miss you.

Posted by: potomacfever00 | December 15, 2010 8:52 PM | Report abuse

Ezra, its over, ok? The end of the U.S. economy is on the verge as we speak. You hear that sound, Ezra? Its the sound of interest rates slowly climbing. Bond market collapse, Ezra. Then stock market collapse. U.S. currency collapse. What will happen to you then, Ezra? Have you already made your deal? Your connections? Martial law is a sign of desperation by a desperate elite. Look at Zimbabwe. You know what happens to people like Mugabe? They either escape to Switzerland with the people's money, or get hanged in a legal court of law.

Posted by: shred11 | December 15, 2010 9:04 PM | Report abuse

No WrongfulDeath -- the money has not been taxed twice -- or at least not all of it. Earned income, dividends and interest are taxed the year they're received, at varying rates (this is subject to another discussion) but capital gains are taxed only when they're cashed in. Since an inheritance will often consist largely of long term capital gains, getting rid of the tax means that this income is now tax free.

The Inheritance Tax is about as fair a tax as their can be -- the person who made the money has no use for it, and the person paying the tax didn't work for it.

Posted by: su10 | December 16, 2010 7:35 AM | Report abuse

For jnc4p: Your suggestion on the steppedup basis is the current law that everyone is trying to change. Since no one has reported this since the bill was originally enacted, or discussed how tax revenues have changed since this became law, it is not surprising you were unaware that is the current law.

Posted by: Ashland | December 16, 2010 9:30 AM | Report abuse

The Inheritance Tax is about as fair a tax as their can be -- the person who made the money has no use for it, and the person paying the tax didn't work for it.

If you want to be fair, if the reason for taxing estates is because "...the person paying the tax didn't work for it" then we should be taxing all estates for that very same reason. After all, if someone wins more than $600 they are supposed to pay tax on it.

If the basis for our tax system relies on the confiscation of wealth, we are missing the point, and the higher the confiscation rate, the more we are missing that point.

What we ought to have is a simplified tax system that precludes the need for tax attorneys and acountants to outfox the taxing authorities. Of course, this is the same background from which many of our legislators have come, so there is little hope for such a rational decision.
After all, these people cannot possibly disenfranchise their own kind.

Of course, not so for the health insurance industry. They have been able to demonize the industry, largely because they have failed to enforce the rules that should be governing the industry in the first place. So they can put all those people out of business and cede that work to federal employees, who are to innovation what Charlie Rangel is to full and accurate disclosure of income.

So long as we have so many people who do not pay ANY federal income tax, we will have politicians pander to them with vote-buying promises and the demonization of the successful. If everyone were successful, there would be no Democrats. Half the world is comprised of idiots and the other half comprised of those who would take advantage of them. This is the only way the Democrats stay viable, by victimizing their so-called constituents.

Posted by: buggerianpaisley1 | December 16, 2010 9:53 AM | Report abuse

How about this: someone leave me $5 million to $10 million in their will and I'll gladly pay the 45% estate tax. Any givers out there?

Posted by: mikesba | December 16, 2010 10:54 AM | Report abuse

Ezra started this with the pros and cons of the three versions on the table in Washington; a tax rate from 35% to 55% and a deduction between 1 Million and 5 million. Comments have ranged from 0% to 100% tax and down to $10,000 exemption. "Tax as regular income" would be 35% to 40% range. So what is fair? Ezra calls the 2009 rates "the Bush" rates. Gee, I thought the Senate and House voted on those rates. The "Lincoln-Kyl" proposed rate must be a talking point in the Congress, right? My wife and I have never "taken home" after tax income over $85,000 together, one of us working for a small corporation and the other for non-profits. But we have saved as much as we could, invested in sometimes risky growth stocks, put 5 children through college (mostly at our expense without financial aid), not traded houses, or bet in Vegas, added to our house with our own labor, etc.

Retired now with a net worth in excess of $3 million we think that is OUR MONEY, not the the governments money. We have paid off our mortgages, live off our investment income (never had a pension from anywhere) and social security. We could pop off next week. We should be able to leave our assets to whomever we please; our children or charities of our choice. Over 40 years we could have spent it all rather than plan for a comfortable retirement.

I would agree that "fairness" should include having an inheritance tax at some level. The rates in the Senate version just voted on pass that test. This is a compromise that still provides significant income for the government while encourageing the very wealthy to donate to the tax deductable causes they admire such as our many great Universities, art museums, etc.

Posted by: phjmajennings | December 16, 2010 11:20 AM | Report abuse

Three rates: 45% for estates of $2 to $10 million. 50% for estates of $10 to $25 million. 55% for estates over $25 million.

Posted by: JimHannan | December 16, 2010 11:38 AM | Report abuse

Blows me away that the Congress is even considering another big tax break for millionaires.

Where are the tea partiers who speak so passionately about cutting the deficit? Why are they not screaming at their Republican Representatives about this giant increase to future deficits. We know they can do it to Dems at healthcare town halls. Where are they now?

Posted by: paul6554 | December 16, 2010 11:48 AM | Report abuse

Blows me away that the Congress is even considering another big tax break for millionaires.

Where are the tea partiers who speak so passionately about cutting the deficit? Why are they not screaming at their Republican Representatives about this giant increase to future deficits. We know they can do it to Dems at healthcare town halls. Where are they now?

Posted by: paul6554 | December 16, 2010 11:50 AM | Report abuse

Amen Ezra. Democrats can be so doggone stupid and stubborn and I ought to know, I am one. The idea that we would torpedo something through tinkering around the edges is ridiculous. This fight is over and we should pass what has been agreed to in the Senate and move on to other issues. We can revisit this all eighteen months from now.

Posted by: army164 | December 16, 2010 11:50 AM | Report abuse

There should be no death tax. Taxes have already been paid on the transferred property. Taxes will be paid in the future on assets that are transferred. Death taxes unfairly impose burdens on family businesses and farms. In my opinion, death taxes are immoral and indefensible.

Posted by: dehunt1 | December 16, 2010 12:13 PM | Report abuse

This hatred liberal feel towards the "rich" always amazes me. Confiscate their wealth with higher income and estate taxes. Is it fair? Who cares they're "rich" and have no right to their wealth whether it be in life or death. According to liberals the "rich" are and endless source of cash to be tapped to fund all those social welfare programs for the non sucessful. Never mind that the "rich" are the ones who employ all those liberal special interest groups like the steel workers unions, mechanics unions etc. So what do you think will happen if liberal Democrats get their way and this country raises taxes on the "rich" to conficatory levels on their earned income and inheritances? I suspect they will cease working as hard (why work hard when the government is just going to take over half what you make), they will do a better job of sheilding their estates from the tax man (make the tax lawyers happy but not very efficient for the U.S. economy) or they will simply leave this country to invest their wealth in places that doesn't hate them. I'm sure there are plenty of places in the world that would love to have them. Bottom line the income of the "rich" like the income of the not rich belongs to the person who earned it not the government.

Posted by: RobT1 | December 16, 2010 12:15 PM | Report abuse

I took a different point from the NYT op-ed: that the estate tax was originally designed, because of the Gilded Age, to prevent to mass accumulation of wealth by a few individuals, and that that inequality was regarded as a national problem that justified a solution like the estate tax.

We're in similar circumstances today with income inequality: a small percentage of Americans is taking home the bulk of the national income, and owns the majority of the assets. Is that really a system we want to perpetuate from generation to generation, like the landed aristocracy of old Europe?

If we think that kind of system is contrary to the ethics of America, then we have two years to make the case that (1) wealth is concentrating in a a very select elite, and (2) at the expense of everyone else in the country, and (3) the estate tax is one tool for making sure each generation starts on a somewhat level playing field with equal opportunity to amass wealth. That's a lot of education to do in two years (when the proposed provisions would expire), but not impossible. At the very least, it's worth the effort.

Posted by: reach4astar2 | December 16, 2010 1:24 PM | Report abuse

Projected Unemployment rate down from 9.6% to 5.7% and the Deficit as a % of GDP down from 8.9% to 3.7%.

http://www.washingtonpost.com/wp-srv/special/business/tax-cut-compromise/index.html?hpid=topnews

In the end, it's about getting things done and most certainly not about throwing another six million long term unemployed people under the GOP Billionaire bus.

Both Cash and COBRA subsidies for the unemployed should be renewed as COBRA payments increase by 300% for millions of American families on Jan 1st. In return for Billionaires retaining the ability to hoard $125 Billion, the bill should include Job Creating grants and credits for Wind, Solar and Battery manufacturing, Home Star/Cash for Caulkers, Building Star, the elimination of tax breaks for highly profitable Oil companies and Cotton and Feed-stock agricultural subsidies, and “free but equal trade” with China, Korea, Columbia and Panama balanced with tariffs.

Gitty-up there lil doggie and Get-er-done!!!

Posted by: Airborne82 | December 16, 2010 5:03 PM | Report abuse

Thousands of American men and women have suffered deaths and casualties fighting in the Middle-East while Millionaires and Billionaires pay $0.00 in estate taxes in 2010.

http://voices.washingtonpost.com/ezra-klein/2010/07/research_desk_compares_whats_t.html#more

The current Estate Tax giveaway to the Rich is costing the USA $300~700 Billion between 2009 and 2018.

Steinbrenner heirs could save millions from one-year gap in estate tax

http://www.washingtonpost.com/wp-dyn/content/article/2010/07/13/AR2010071305028.html

“The year-long hiatus of the estate tax, which normally falls on the very rich, could cost the U.S. Treasury an estimated $14.8 billion in 2010. "In the midst of this terrible recession, the idea of giving billionaires a massive tax break is obscene," “

Income and estate tax cuts for Billionaires while troops are dying and suffering casualties daily in two wars that are financed entirely on borrowed deficit spending only makes sense to the most corrupt.

Posted by: Airborne82 | December 16, 2010 5:13 PM | Report abuse

A poll of the above commentators would indicate that those who rant about the "fairness" of the estate tax would, surely, reveal that none of them have any assets that would be taxed.

It is double taxation no matter how you slice it.

Posted by: sasmd3 | December 16, 2010 7:13 PM | Report abuse

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