Careful backpedaling on estate tax, Senator

Contrast Senator Grassley’s current statements with his 2005 thought that “it’s a little unseemly” to suggest repealing the estate tax “at a time when people are suffering.” The tax bill promises suffering.

One of the problems with backpedaling is if you don’t do it well, you trip. Somebody catch Senator Chuck Grassley.

As has been widely noted across social media — a good example is this post in Bleeding Heartland — The Des Moines Register quoted Iowa’s senior senator that estate tax repeal would reward “people that are investing, as opposed to those that are just spending every darn penny they have, whether it’s on booze or women or movies.

Ironically, while promoted as a pullout quote in the packaging of the story, the “booze or women or movies” comment came quite low in the piece. More substantive problems with the Senator’s rationale for opposing the estate tax were presented higher: specifically his continued insistence that this has something to do with the survival of family farms.

It. Does. Not.

10-30-17tax-factsheet-f1Senator Grassley has promoted this unsupportable justification for his position for many years. This New York Times piece from 2001 includes it.

And he renewed it again Monday in claiming his “booze or women or movies” comment was out of context, taking the opportunity to promote his spin again — and again getting wrong the facts behind his fundamental objection: the impact on farms.

There, he claimed in the story that he wants a tax code as fair for “family farmers who have to break up their operations to pay the IRS following the death of a loved one as it is for parents saving for their children’s college education or working families investing and saving for their retirement.”

While only a handful might actually have to pay any tax at all because of the generous exemptions in the estate tax — shielding $11 million per couple’s estate from any tax — no one in the many years the Senator has pretended this is an issue has been able to cite a single farm that had to break up because of the tax.

Contrast his current statements with the one he made in the wake of Hurricane Katrina in 2005, when there was a move afoot to slash the estate tax. And — as shown by the graphs below — even fewer estates in Iowa and the nation are affected by the estate tax now than at that time, when he said “it’s a little unseemly to be talking about doing away with or enhancing the estate tax at a time when people are suffering.”

The tax legislation in Congress will cause millions to suffer, directly through a loss of health insurance, some with actual tax increases even at middle incomes, and over time with a loss of critical services that help low- and moderate-income families just to get by.

Furthermore, any middle-income tax cuts expire in 2026 while high-income benefits and corporate breaks remain in effect. And then, even more will suffer.

Questions we have been asking for years remain relevant today, and each time pandering politicians take a whack at the estate tax:

  • Is it a greater priority to absolve those beneficiaries of the need to contribute to public services — and make everyone else in the United States borrow billions more from overseas to pay for it — or to establish reasonable rules once and for all to assure the very wealthiest in the nation pay taxes?
  • Do we pass on millions tax-free to the heirs of American aristocracy, or do we pass on billions or trillions of debt to America’s teen-agers?

We all shall inherit the public policy now in Congress. As long as the estate tax exists, it remains the last bastion assuring that at least a small share of otherwise untaxed wealth for the rich contributes to the common good, or at least toward paying the debt they leave us. Fear not for their survivors; they still will prosper handsomely.

2017-owen5464Mike Owen is executive director of the Iowa Policy Project, a nonpartisan public policy research organization in Iowa City. Contact: mikeowen@iowapolicyproject.org

Editor’s Note: This post was updated Dec. 6 with the graphs showing the decline in Iowa estates affected by the estate tax.

The Case of the Missing Middle-Class Tax Cut

If you’re looking for a real middle-class tax cut in the Senate plan, you’d better put Sherlock Holmes on the job.

If Sherlock Holmes were a United States Senator, he’d be on it: “The Case of the Missing Middle-Class Tax Cut.”

We’ve all heard about the suspicious tax cut. It’s been in all the papers, all the social media posts, anywhere the spin merchants can find a way to promote the idea that the proposed massive and permanent tax-cut giveaway to millionaires, billionaires and corporations is somehow a “middle-class tax cut.”

Puh-leeze.

No reliable information can justify the billing. Middle-class and lower-income taxpayers ultimately will — on average — pay more as a result of this legislation if it becomes law.

In Iowa, the Institute on Taxation and Economic Policy (ITEP) has shown that despite some minor benefits upon enactment, the bill when fully phased in will actually result in a tax increase, on average, for the bottom 60 percent of Iowa taxpayers. Higher up the income scale, tax cuts will remain. (In the graph below, average tax changes for the bottom three quintiles of Iowa taxpayers are shown as increases, above the line.)

Someone in Iowa making $1.5 million in 2027 would get about a $4,800 benefit under the ITEP analysis — not a lot to people at that income, maybe a good payment on luxury box rent at the ballgame.

But that break for the top 1 percent would total about $68 million — a hit to services on which the money could be spent on behalf of all.

Millions of Americans — an estimated 13 million — would lose health insurance under this bill, a large share of those not giving up insurance voluntarily, but because they could no longer afford it.

Billion-dollar estates that already have $11 million exempt from tax under current law would see a doubling of that exemption, as if the first $11 million free and clear is not enough while the millions of working families struggle to get by, some at a $7.25 minimum wage that has not been raised in over eight years (in Iowa, 10 years).

A Child Tax Credit designed to help working families with the costs of raising children would be extended to families earning $500,000 a year — as if those families need the extra help, when families making $30,000 get little from the deal. By the way, that is one of the changes billed as a middle-income break, and even it would expire in 2025.

There is no expiration, meanwhile, on the estate-tax break or on new giveaways to corporations.

If you’re looking for a real middle-class tax cut in this legislation, you’d better put Sherlock Holmes on the job. Even then, anything you find has an expiration date, plus tax increases. And the millionaires’ cuts that remain will clamp down on resources for the essential things that government does to protect and assure opportunity for us all, and our nation’s future.

You cannot afford to do both — provide critical services and also cut resources to pay for them.

It’s elementary.

Mike Owen, executive director of the Iowa Policy Project
mikeowen@iowapolicyproject.org

Estate tax debate to continue, as billions trickle away to rich

We’ll get to have the same arguments for the next two years, while more untaxed billions trickle away in windfalls to the rich.

Mike Owen
Mike Owen

Americans’ generosity to the wealthy knows few boundaries. Those boundaries appear to be relaxing even further in the tax deal announced Monday. Case in point: the estate tax.

Various options on the table for the estate tax would relax its impact on inherited wealth from current law. While not in effect in 2010, current law would return the estate tax to a level higher than it was as recently as 2009, when the maximum rate was 45 percent, with an exemption for the first $7 million ($3.5 million per spouse). President Obama had proposed making those 2009 parameters permanent, which would cost between $229 billion and $253 billion over 10 years, compared with current law, not including the interest on the added debt it promised.

Generous, to be sure, but until the deal announced Monday, it appeared to be a workable compromise. No one seriously expected they could repeal the estate tax, and no one expected the estate tax to return to a 55 percent maximum rate and $2 million exemption ($1 million per spouse) as it exists in current law for 2011. And the repetitive, often misinformed debate would effectively be ended. Now, instead of the President’s compromise, we appear to be looking at an estate tax of only 35 percent, with an exemption of $10 million ($5 million spouse), for two years.

Keep in mind that even at 2009 levels, the estate tax affected less than three-tenths of 1 percent of all estates — only the extremely richest fortunes being passed on — and is the only means to tax previously untaxed income for those fortunes. So, while working families see most of their income taxed, the extremely rich do not without an estate tax.

As noted in a Center on Budget and Policy Priorities analysis earlier this year, the parameters for a new estate tax as agreed to by the White House and Republican negotiators will be much more costly than the generous compromise earlier offered by the President. When proposed earlier this year by a bipartisan group of senators who have supported full repeal of the estate tax, including Iowa’s Chuck Grassley, CBPP noted the 35 percent/$10 million parameters would “cost considerably more” than the President’s proposal:

That would cost at least $60 billion more over ten years than making the 2009 rules permanent, despite soaring federal budget deficits. Moreover, the larger the estate, the greater the tax cut for wealthy heirs would be.

However, even that estimate is understated, because it assumed a phase-in of the 35 percent/$10 million parameters. As proposed, the cost is estimated to be more than double — $125 billion over 10 years.

Worth noting: The deal in Washington on the estate tax would be for two years. So, if the deal passes, we’ll get to have the same debate and hear the same arguments for the next two years, while more untaxed billions trickle away in windfalls to the rich.

Posted by Mike Owen, Assistant Director

Who ‘gets it’ on estate tax? This fellow does

Return the estate-tax debate to the real world.

One former congressman gets it. We will soon find out how many of our current members of Congress do as well.

Former U.S. Congressman Berkley Bedell from northwest Iowa writes in today’s Des Moines Register that eliminating the estate tax would compound tax policy mistakes that only allow the super-rich to get richer and richer.

On an issue distorted beyond recognition by emotional, inaccurate and at best disingenuous arguments made by those who would do away with the estate tax, Bedell is a breath of fresh air.

In his column, Bedell offers the relevant questions:

Do we want to properly pay our teachers and make it possible for our young people to attend college regardless of their family’s wealth? Do we want to build an economy where common people can have jobs and provide for their families? Do we want to attack our dependence upon Mideast oil and the pollution of our planet? Do common people matter? Or do we want to mostly help the top 1 percent of our population become richer and richer and own more and more of our country by cutting their taxes so that we put their wealth ahead of the lives of the other 99 percent of our people?

Bedell is right on the mark.

Return the estate-tax debate to the real world of our budget choices of what we need as a nation, and how we should pay for it.

Posted by Mike Owen, Assistant Director

Beyond estate-tax scare tactics

“The multimillionaires and billionaires who walk among us have already been well cared-for, thank you, by many politicians who want to pretend they’re looking out for the dead.”

Peter Fisher
Peter Fisher

It is time to get past the scare tactics that have now become common any time Congress discusses the federal estate tax.

The multimillionaires and billionaires who walk among us have already been well cared-for, thank you, by many politicians who want to pretend they’re looking out for the dead.

The estate tax has steadily declined since 2001, with the top rate falling from 55 percent to 45 percent now, and exemptions rising from $1.3 million per couple in 2001 to $7 million this year. That means $7 million is tax-free. Not surpringly, only two-tenths of 1 percent of all estates are required to pay any federal tax at all on an inheritance.

This is not good enough for some, who push for repeal or so-called “compromises” that are tantamount to repeal. Meanwhile, our federal deficits are mounting and creating debt that will fall to the children of middle-income America, if not the grandchildren of dead billionaires.

As stated this week by Chuck Marr, federal tax policy director for the nonpartisan Center on Budget and Policy Priorities:

In the aftermath of Hurricane Katrina in 2005, Iowa Senator Charles Grassley stated that “it’s a little unseemly to be talking about doing away with or enhancing the estate tax at a time when people are suffering.” What the senator said remains true today: given the current economic crisis and the human anguish it has caused, it would be more than “a little unseemly” to shrink what remains of the estate tax.

The Institute on Taxation and Economic Policy has produced a good factual summary of how the estate tax affects people in every state. Here are some of the key numbers for Iowa:

IOWA
Number of Estates Owing Tax
: 2006 — 237; 2007 — 158; 2008 — 225
Percentage of Estates Owing Tax: 2006 — 0.9 Percent; 2007 — 0.6 Percent; 2008 — 0.8 Percent

Those estates that do pay tax represent windfalls to beneficiaries of vast fortunes, the contents of which in large measure were never taxed before.

Is it a greater priority to absolve those beneficiaries of the need to contribute to public services — and make everyone else in the United States borrow billions more from overseas to pay for it — or to establish reasonable rules once and for all to assure the very wealthiest in the nation pay taxes?

Do we pass on millions tax-free to the heirs of American aristocracy, or do we pass on billions or trillions of debt to America’s teen-agers?

How can these be difficult questions?

Posted by Peter S. Fisher, Research Director