Leader Blues

Wednesday, April 27, 2005

EDITORIAL>> A telling roll call

Every now and then a legislative body takes a roll call that identifies for voters the real constituency of their lawmakers. The vote on permanent repeal of the federal estate tax provided such a roll call.

The U. S. House of Representatives voted to permanently end the tax, which under current law is set to expire in 2010 and then go back on the books in 2011. Arkansas Representatives Marion Berry, John Boozman and Mike Ross voted to kill the tax; Representative Vic Snyder voted to continue it. As we have come to expect, Snyder cast the lonely vote that was certain to be unpopular, politically unsalable and absolutely correct.

If the Senate follows suit, hundreds of billions of dollars of profits collected by the nation’s wealthiest people in the next 20 years will go untaxed. That’s right: untaxed altogether. President Bush and the Republican leaders of Congress never acknowledge that little fact of life. Congressman Ross joined the Republicans in saying that he was ending the double taxation of inherited wealth by killing the estate tax. It simply is not true.

The other side of the coin is that elimination of the nearly century-old tax will sink the country far more deeply into debt – by another trillion dollars over the 10 years after it ends. If you can believe President Bush that the growing deficit could cause the United States at some point to repudiate its debt, it could even speed the collapse of Social Security. We don’t hold to that notion, but it was the president who raised it, though not in conjunction with the repeal of the estate tax. He’s for that.

Ross and Berry disappointingly referred to it as the “death tax,” the name that a Republican public-relations man came up with a dozen years ago to change public attitudes about the estate tax. The estate tax is collected on the inheritances of fewer than 2 percent of Arkansans who die each year and the tax on nearly all of them is small. The average tax on estates larger than $20 million last year was 16.5 percent, less than you pay in income and payroll taxes on your wages. For the next tax year, the tax will apply only to estates larger than $2 million for individuals and $4 million for couples.

But the Republican PR campaign persuaded Americans that the government was about to take away the widow’s mite (taxes aren’t collected at all on estates passed to widows). The tax gradually became unpopular and Bush was able to push its repeal through Congress in 2001, although with a provision that reinstated the tax one year after it was phased out in 2010. That was done so that long-range projections of deficits and the national debt did not look so frightening.

Arkansas took a fiscal beating from the act as well. The law phased out the credit for state-based inheritance taxes effective this year. Since the Arkansas estate tax was fixed at the amount of the federal credit it effectively ended the Arkansas tax, which averages more than $20 million a year. That’s $20 million that won’t be available for schools, colleges, prisons and health care.

Sooner or later, after a respectable period, your taxes will be raised at both the federal and state levels to make up for the loss.

Congressman Ross, explaining his vote, said it was unfair to tax income when a person earned it and then tax it again when it was passed on to heirs. But most of the assets in large taxable estates are appreciated assets — unrealized long-term capital gains such as appreciated stock. It has never been taxed and never will be taxed if there is no estate tax.

So here is the equation: You pay some 20 percent of your salary or wage in federal and state income and payroll taxes. But Paris Hilton will not pay a dime of taxes, state or federal, on the vast inherited assets that will be her stake in life.

Berry said farm families would no longer be threatened with losing the family farm to pay the inheritance taxes. But no one has yet found a case where a farm had to be sold to satisfy an estate tax.

Thank you, Congressman Snyder, for voting for the interests of working folks. The dividends will be small at election time.