In an inexplicable reversal, the U.S. House of Representatives recently voted to keep the federal death tax on the books. In legislation sponsored by House Ways and Means chairman Bill Thomas (HR 5638), the House for the first time in a decade deviated from its support of total repeal, and thus gave up the moral high ground that death should not be a taxable event.
The Thomas bill would tie the estate tax to the capital-gains tax. It would create a $5 million unified exemption, would tax estates valued up to $25 million at the capital-gains tax rate, and would double that rate for estates valued any higher. Under present law, the capital-gains tax rate is 15 percent through 2010, and 20 percent starting in 2011, which means a top estate-tax rate of 40 percent under the Thomas bill.
For New Yorkers, the Thomas bill has even more bad news — the elimination of the credit for state death taxes. With the 16 percent state levy no longer deductible, New Yorkers with very large estates could actually be paying higher taxes under the Thomas bill than under current law. The upside to this provision is that it would create enormous pressure on Albany to eliminate the state death tax and keep wealthier New Yorkers from fleeing the state, but there is no guarantee that such pressure would be effective.
The House made a serious tactical error in passing the Thomas bill. The death tax is first and foremost a moral issue. Americans do not believe that death should be a taxable event. The death tax punishes virtue and rewards vice. It tells older Americans, “You can’t take it with you, and you can’t leave it to your kids.” So it discourages the traditional American virtues of hard work, thrift, savings, and investment, while it encourages lavish, reckless consumption.
The class-warfare ideologues will come up with all the excuses in the world to keep this tax, but their true motivation is envy. They want to punish success, even though polls consistently show that the American people disagree.
Last year two Yale professors, Mayling Birney and Ian Shapiro, did a comprehensive review of this issue. They said: “Many polls since the late 1990s have shown widespread public support for estate tax repeal, in the realm of 60 or 70 or 80 percent. Moreover, supporters appear to be spread more or less equally across income groups, contrary to what self-interest would predict.”
The study’s remarkable findings, which confounded the study’s authors, belie the claim that strong public support for repeal depends on misunderstanding or misleading information. They found surprisingly high public support regardless of who asked the questions or how they were phrased.
Until very recently, the House stayed true to its constitutional role as the voice of the people and remained committed to repealing the tax. Though pressure for full repeal has not yet killed the death tax, it has had success. It has imposed enormous political costs on the senators committed to keeping the tax (it helped defeat Democrat Tom Daschle last cycle). More, the most recent Senate test vote on repeal garnered 57 votes, 3 votes shy of the 60 needed to break the Democrat filibuster.
There are wavering swing votes in the Senate — namely Mark Pryor, Mary Landrieu, Marie Cantwell, Lincoln Chafee, Tim Johnson, and Max Baucus. But Senate Democrats will take the House’s 40 percent top rate as a new starting point and insist on an even higher tax. With the pressure for repeal from the House now gone, there is a risk that repeal advocates will lose their most powerful weapon — total repeal coming for one year in 2010 — with little to show for it.
Death and taxes may be inevitable, but they don’t have to happen at the same time. The political impulse to “get something done” should not be allowed to keep this tax on the books, let alone at such a punitive rate as 40 percent. Republican leadership in both the House and Senate should direct their efforts to complete, permanent repeal of the death tax. They may not succeed this time around, but the tax’s supporters must eventually answer to the voters.
– Phil Kerpen is a policy analyst in Washington.A version of this column originally appeared in the New York Sun.