As it has every year since President Bush took office, the estate tax is back with us, and it can be fairly said that seldom in Washington has so much political energy been expended on behalf of so few.
About 2.5 million Americans die each year, and this year 19,000 of them will leave estates that exceed the $1.5 million exemption and thus be subject to the tax. And on Tuesday the House voted, by a comfortable 272-162 margin, to abolish the estate tax altogether in 2010.
The estate tax was never really very much of a comprehensive tax. In 2001, before Congress began cutting it, only 2 percent of estates were subject to taxation. The Republican sponsors of eliminating the tax altogether waxed lachrymose about small family farms and businesses having to be liquidated to pay the “death tax.”
But last year only 440 estates in which the principal asset was a family-owned farm or business were subject to the tax.
In 2009, the exemption rises to $3.5 million, cutting the percentage of estates subject to the tax to three-tenths of 1 percent, meaning 99.7 percent of all estates are exempt. The bill faces a problematic fate in the Senate, but there is talk there of retaining at least some estate tax. The figure being discussed is a $10 million exemption that would affect only 600 estates.
The reason Congress is under some pressure to act: the phased reduction of the estate tax passed in 2001 expires at the end of 2009 and the full amount of the old tax _ a $675,000 exemption and a 55 percent tax rate _ would become law again on Jan. 1, 2010.
This was done to conceal the impact of the tax cut on the deficit; it was politics too clever by half and dreadful tax policy. The estate tax affects only a handful, but it generates a lot of revenue. Repealing the estate tax entirely in 2010 would add $290 billion to the federal deficit over the next decade.
Somehow those revenues have to be made up, but congressional Republicans who have so much to say about the “death tax” have little to say about the “debt tax” that red ink will eventually impose on all the rest of us.
(Contact Dale McFeatters at McFeattersD(at)SHNS.com)