Progressives in the U.S. Senate have introduced a potent package of estate tax reforms that would, if enacted, start seriously trimming America’s most super-sized hoards of private wealth.
Back a hundred summers ago in 1910, former President Theodore Roosevelt — a Republican — called for “a graduated inheritance tax on big fortunes,” a new tax levy that would increase “rapidly in amount with the size of the estate.”
Last week, four U.S. senators — three Democrats and an independent — introduced legislation that would subject big fortunes, before heirs can grab them, to an estate tax levy that would rapidly rise with the size of the estate.
Teddy Roosevelt would most certainly approve. Will a majority in today’s United States Senate?
By all logic — and cold-blooded political calculation — the newly introduced Responsible Estate Tax Act ought to fly through the Senate. Seldom, if ever, has a piece of progressive tax legislation had so much going for it.
Start with the budget math. Great Recession America is now going through the worst public services budget squeeze since the Great Depression. Teachers, cops, and firefighters are losing jobs. Libraries and parks are closing. Roads and bridges are crumbling.
States and local governments — and millions of jobless Americans — need federal help. The new Responsible Estate Tax Act, introduced by Bernie Sanders of Vermont and co-sponsored by Tom Harkin of Iowa, Sheldon Whitehouse of Rhode Island, and Sherrod Brown of Ohio, would help provide it.
Under the bill, all estates over $3.5 million, or $7 million for couples, would face a federal estate tax, just as they did under the federal estate tax in effect last year. But this estate tax, unlike last year’s, would be steeply “graduated,” with the tax rate rising as an estate’s value increases.
The tax rate on estates worth between $3.5 and $10 million would be 45 percent, the same as the 2009 rate for all estates subject to estate tax. The rate would increase to 50 percent on estate value between $10 and $50 million and jump to 55 percent on all value over that $50 million.
Billionaire couples would face, on top of that, a 10 percent surtax on estate value over $1 billion, a move that would bring the overall estate tax rate on bequests over a billion to 65 percent.
The total package would raise, over the next ten years, at least $264 billion — and likely much, much more down the road. America’s 400 biggest fortunes alone, according to Forbes, now add up to a combined $1.3 trillion.
But billionaires, even with a 65 percent top estate tax rate in effect, would still be getting something of a bargain. From 1935 through 1981, the top federal estate tax rate never dipped below 70 percent. For most of that period, from 1941 through 1976, America’s richest faced a 77 percent top rate.
America’s richest, right now, face no federal estate tax at all. The Bush tax cut enacted in 2001 has eliminated the estate tax entirely for 2010. So this year, for the first time since 1916, wealthy heirs are pocketing tax-free fortunes.
These wealthy heirs include the three dogs of Gail Posner, the 67-year-old widow of a leveraged buyout king. Posner passed away in March. Her will leaves her pooches $11.3 million. Not a dime of that will flow to the federal treasury.
But four-legged heirs like Conchita, Gail Posner’s prized Chihuahua, and the two-leggeds now in line to inherit the $9 billion fortune of Houston pipeline mogul Dan Duncan, who also died this past March, could prove to be one-year wonders.
The 2001 Bush tax cut legislation, under current law, sunsets at the end of this year. The tax code next year will essentially revert back to the pre-Bush status quo, a step that would subject estate value over $2 million for couples to a straight 55 percent tax rate.
This current law reality creates an entirely unique — and favorable — political environment for progressive estate taxation. Senate Democratic leaders, notes Chuck Collins of Wealth for the Common Good, are holding all the cards.
If the Senate’s friends of the financially favored refuse to engage reasonably on the future of the estate tax, Senate leaders could simply let current law play out.
“If nothing happens,” as Collins explains, “we get a strong estate tax law.”
With leverage like this, Senate majority leaders could be aggressively pressing for a tough-on-billionaires approach — like the new Sanders bill. Instead, says Collins, those leaders have let senators Blanche Lincoln of Arkansas and Jon Kyl of Arizona set the tone for Senate estate tax debate with a “compromise” proposal that would sink the estate tax rate on billionaires down to 35 percent.
In effect, says Collins, Democratic leaders are sitting with three aces and getting “ready to fold.” And they will fold, unless public pressure forces the Senate to give the new Sanders estate tax proposal, S.3533, some serious consideration.
Wealth for the Common Good and a host of other national groups, including long-time estate tax champion United for a Fair Economy, have begun mobilizing that needed public pressure online. The first step: gaining more Senate co-sponsors for the Sanders legislation.
Under this legislation, 99.7 percent of estates in the United States would face no estate tax in 2011. And the heirs of the 0.3 percent subject to estate tax would still walk away, after taxes, with much more than enough moola to keep their Chihuahuas forever in clover.
In a democracy, numbers like these would make the passage of something like the Sanders Responsible Estate Tax Act proposal an absolute slam-dunk. Unfortunately, we live in a plutocracy. Getting a responsible estate bill through Congress is going to take hard work.
Sam Pizzigati edits Too Much, the online newsletter on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Too Much appears weekly. Read the current issue or sign up to receive Too Much in your email inbox.
