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ECONOMICS -
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Repealing the Paris Hilton Tax: So Not Hot

Posted in the database on Saturday, June 03rd, 2006 @ 20:29:53 MST (2230 views)
from Thomas Paine's Corner  

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Dirty, Rotten, Filthy, Stinking Rich!

The estate tax (or, The Paris Hilton Tax) was "first adopted in the nineteenth century to fund various wartime government revenue shortfalls" (much as we have today), and "has been on the books continuously since 1916" when reformers were grappling with how to deal with the Gilded Age's growing income inequality. One such reformer of that era, President Teddy Roosevelt, said he believed in a "graduated inheritance tax on big fortunes" because Americans "are bound in honor to refuse to listen to those men would make us desist from the effort to do away with the inequality, which means injustice." This year, the exemption level is $2 million ($4 million per couple), which means only 5 out of every 1,000 people who die will pay the estate tax. Nevertheless, the Senate leadership soon will take up legislation to repeal the estate tax completely in an effort to soothe its disenchanted base. CongressDaily reported yesterday that Senate Majority Leader Bill Frist (R-TN) could bring the bill to the floor next week, but "it is widely expected that repeal legislation will not garner the 60 votes needed." The decision to bring up repeal comes at a time when Americans rank terrorism, Iraq, gas prices, and the economy as national priorities, while only 23 percent of Americans support full repeal of the estate tax. "It's a little unseemly," estate tax opponent Senator Chuck Grassley (R-IA) said in Katrina's aftermath, "to be talking about eliminating the estate tax at a time when people are suffering." Given the ongoing war in Iraq and the continuing Gulf Coast reconstruction, the Senate should heed his words.

NOT A REAL COMPROMISE: Because supporters of full repeal do not have enough votes, the Senate may take up "compromise" legislation by Sen. Jon Kyl (R-AZ). Kyl's bill calls for a $5 million exemption level ($10 million per couple) taxed at a 15 percent rate. The current maximum rate is 46 percent on the amount over $4 million, and the average estate subject to the tax pays only 18 percent because of the high exemption. The Kyl bill is a costly compromise. The Center for Budget and Policy Priorities estimates the change would cost $770 to $800 billion from 2012-2021, including interest costs, which is 80 to 84 percent as much as full repeal. A more sensible solution would be a $5 million per couple exemption and a 45 percent rate above that level. CBPP found that raising the exemption level, rather than lowering the tax rate, would better target the few farms and family-owned businesses the tax affects.

THE BIRTH TAX: The right wing has been on a mission to define the tax on inherited wealth as a "death tax." (Michael Graetz and Ian Shapiro have documented how the right did so in their book, "Death by a Thousand Cuts.") While 2.4 million Americans die each year, the federal government only collects taxes on 12,600 estates, meaning only 0.5 percent of Americans who die pay any estate tax under this year's exemption levels. "Calling this a 'death tax' as if it applies to all, or even many, Americans who die," writes the Brookings Institution's Diane Lim Rogers, "is truly false advertising." Instead, repealing the estate tax will add thousands of dollars to the tax burden of our children and grandchildren. (The current burden on $8.3 trillion of debt is nearly $28,000.) Full repeal is expected to cost the government $745 billion after the first 10 years that it is in effect, and $1 trillion as interest accrues on the added debt. Rogers estimates this will add an additional $3,000 to the per-person debt burden. To put the $1 trillion figure into perspective, the total cost of the Iraq war will hit $320 billion once the Senate passes the latest supplemental bill. And in 2005, the federal government spent $39 billion on homeland security, $38 billion on K-12 education, and $28.7 billion on veterans health care -- all paltry figures when compared to the long-term cost of estate tax repeal. The money going towards repeal could also be used to keep Social Security solvent over 75 years.

PARIS HILTON IS NOT A FARMER, SHE JUST PLAYS ONE ON TV: One myth the right wing peddles is that the estate tax puts farmers and family-owned business owners out of business. Forced to the pay enormous tax bills, the story goes, farmers have to sell off the family farm to pay the tax man. The story has been highly effective - it has "helped convince 33 percent of Americans that every U.S. family must pay estate taxes." But it isn't true. A Congressional Budget Office (CBO) report looked at these claims and "exploded the myth that family farms and businesses must be sold to pay the tax." CBO found under the 2009 estate tax schedule ($7 million per couple), the "number of family-owned small businesses required to pay any taxes in the year 2000 would have been just 94," and the "number of family farms that would have had to sell any assets to pay that tax would have been 13."

THE SUPER-RICH PUSH FOR ESTATE TAX REPEAL: Those who would benefit most are the ones pushing hardest for estate tax repeal. Passing this massive tax cut for the super-rich would mean "830 of the best-off estates in the country would split an estimated $14 billion in tax breaks each year, or $16 million per estate." A recent report from Rep. Henry Waxman (D-CA) and other members of the House Government Reform committee found that oil company executives "are likely to receive a windfall of up to $211 million" under full repeal. Exxon CEO Lee Raymond, who is receiving "one of the most generous retirement packages in history," would receive a tax break of over $160 million. President Bush, Vice President Cheney, and the Cabinet stand to gain between $91 million and $344 million. Some of the richest families in America are leading the lobbying charge. Public Citizen revealed that "18 families worth a total of $185.5 billion have financed and coordinated a 10-year effort to repeal the estate tax, a move that would collectively net them a windfall of $71.6 billion." These families include "the candy magnate Mars family, Waltons of Wal-Mart fame, Kochs of Koch Industries and Dorrance family of the Campbell’s Soup Co." Other wealthy Americans such as Paul Newman, actor and owner of Newman's Own, are on the opposite side of the issue. "For those of us lucky enough to be born in this country and to have flourished here," Newman said, "the estate tax is a reasonable and appropriate way to return something to the common good. I’m proud to be among those supporting preservation of this tax, which is one of the fairest taxes we have."

American Progress Report



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