You might not expect a tax that hits the heirs of multimillionaires to invoke broad-based anguish. But since estate tax opponents brilliantly labeled it the "death tax," it's somehow become a lightening rod so electrifying that Democrats didn't even bother trying to keep it from expiring in 2010. And so, for one year only, there is no federal estate tax.
But it's looming. The tax is scheduled to kick in with a vengeance in 2011, even stronger than in '09, at the same time the Bush tax cuts are set to expire. Bush's tax architects deviously designed it this way to pressure lawmakers to ease the tax's harsh landing, either by raising the exemption (the estate's worth above which the tax kicks in), or by lowering the rate from 55%.
Responding on cue to the pressure to mitigate the estate tax are Sen. Blanche Lincoln (D-AR) and Sen. Jon Kyl (R-AZ). They're looking to trim it by about $80 billion over ten years. After a two years of trillion-dollar deficits, how does Lincoln hope to defend a tax cut for multimillionaire heirs? Well, by fibbing a bit. "I don't think there's any American out there who believes you should work all of your life to find that when you die, 55 percent of [your estate] has got to go to the government," she said.
No. That is not how the estate tax works. As Wonk Room reminds us, the exemption makes first $3.5 million of an estate tax free. So an estate worth $4 million would have a tax bill of $275,000 -- or 6.8% of the total estate. Fourteen percent is the estate tax's overall effective rate nationwide.
It's viable to argue that estate taxes might discourage older Americans from adding value to taxable enterprises for fear that crossing the threshold will trigger a tax. But it's just wrong to wave your hands and claim that estate tax proponents want to steal half of most wealthy peoples' estate.
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