Hurtling Toward a Planet Called Plutocracy
Chuck Sheketoff
While there’s some good in the compromise between the White House and congressional GOP leaders over taxes and the economy, some of it goes down like swallowed shards of broken glass — especially given the President’s campaign promises and Americans’ hope for principled leadership.
Particularly devastating is a feature that has received relatively little attention: the resurrection of a significant weakening of the federal estate tax.
It’s hard to conceive of an America where economic opportunity is shared without a meaningful estate tax. A strong estate tax is the last protection against the unbridled rise of an American aristocracy that comes to control all the levers of power. The modest tax on only a portion of extremely valuable estates (while letting billions of dollars pass through to lucky heirs tax free) helps curtail dynastic wealth. At this time of year it is important to remember that the estate tax does this, in part, by promoting philanthropy. At a time of the year when ordinary mortals dig deep to share their modest abundance with those less fortunate than themselves, how ironic is it that the President and Congress are about to shower billions on the heirs of the wealthiest of the wealthy who die?
Warren Buffet, who has chosen to avoid much of the estate tax by being philanthropic, knows the issue well and is likewise concerned about its impact on democracy. In 2007 he testified before Congress:
You would have to attend 200 funerals to be at one at which the decedent's estate owed a tax.* Indeed, far more people who die receive a large tax benefit. I don't think that's generally understood. Namely, a stepped up basis on appreciated assets. ...
If people insist on renaming the estate tax, it would be more appropriately labeled the 'death present.'
Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward a plutocracy.
Plutocracy: (n) 1: government by the wealthy; 2: a controlling class of the wealthy
The White House compromise on the estate tax, should it become law, speeds up our move toward Plutocracy — a planet completely alien and hostile to the American Dream.
Under the tax cuts enacted during the Bush Administration, the estate tax began to erode, such that by 2009, the federal estate tax kicked in at $3.5 million for individuals and $7 million for couples. In other words, a couple could pass on to their heirs a cool $7 million without incurring taxes. The sums above those amounts faced a 45 percent tax, with an effective tax rate of just 20 percent.
Under the Bush-era shenanigans, the estate tax disappeared completely in 2010. It’s scheduled to reappear in 2011 at the more robust 2001 level, absent congressional action.
While it had long been predicted that a deal on the estate tax would settle on the already generous levels of 2009, the recently announced compromise shreds that assumption.
In its place, the Administration accepted a two-year implementation of what has been called the Lincoln-Kyl amendment on the estate tax, named after Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ), who have been hawking the scheme for years. Their proposal exempts the first $5 million of an estate ($10 million for a couple) from the estate tax and sets a maximum tax rate of just 35 percent on the portion above the $10 million exemption.
This plan for the estate tax would reduce federal revenues by an estimated $20 billion over the next two years, providing a windfall exclusively to heirs of about one-tenth of 1 percent of estates (0.14 percent -- 1 out of 700 -- estates).
Yes, more billions for billionaires, and billions less to invest education, infrastructure and other real priorities.
And ultimately, more fuel for that shuttle hurtling toward Plutocracy.
*The "compromise" captures fewer estates than when Buffet testified; it would be 1 in 700 funerals if he were talking about the compromise today.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.
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9:58 p.m.
Dec 7, '10
True, people were rebelling against a monarchy, not a plutocracy, during the French Revolution but I can't help but think sometimes, "hey, last time people got their heads chopped off, we ain't doin' too bad after all." j/k.
12:48 a.m.
Dec 8, '10
Compromise I understand but Obama's administration continually lets the Republican's define the parameters of any discussion. The R's draw the line and Obama quickly steps over it. I am saddened by his decision. Many of us in America who went to bat for the President in the election are tired of feeling the bat hit us over the head. And pundits wonder why voters stay home on election day?
I'm a little off topic but that happens a lot on blogs. Tax cuts for the wealthy during this economic period is ludicrous. This is terrible policy! I am frustrated that our President has allowed "minority rule" to dominate good public policy. That is not what America voted for.
7:42 a.m.
Dec 8, '10
This article is one-sided to say the least. I agree we don't need a plutocracy or an oligarchy. However, I've read multiple business cases where you have a small or medium sized business and the owner passes. Due to estate taxes, the tax burden is put on the heirs and they're forced to sell the business, usually at a discount due to time constraint, to cover the tax burden owed. Selling the business cuts jobs, jobs that were supporting families. Just another angle
9:41 a.m.
Dec 8, '10
Of the multiple cases you've read, give me three.
The fact is, if an estate pays an estate tax, the law provides for a 10 year payment plan. If a business makes enough to be worth millions, a 10 year payment plan isn't impossible, and the heirs get a step up in basis on their entire business, so they also get a large tax windfall in the future in most cases.
The problem with the estate tax agreement is the same as with the social security tax holiday. In two years, during the pitch of a presidential election, the chances of changing these back and imposing a tax increase will be next to impossible, because the R's will campaign on no new taxes (either during an ongoing recession, or a nascent recovery)
So SS will be even more in debt, and the estate tax proposal of Lincoln/Kyl is a done deal.
Bottom line. We've got about 12 months to actually reform our entire tax structure. After that, this compromise, including the estate tax, becomes "facts on the ground".
11:19 a.m.
Dec 8, '10
Dan --
Please provide evidence for your assertion. If this is as widespread or horrific as you suggest, there are surely news accounts.
Last I heard, there was still a $1000 reward for anyone who can provide evidence of a single family farm that was lost due to the estate tax.
12:06 p.m.
Dec 8, '10
I'm in the strange position of not only have to defend President Obama but actually feeling sorry for him.
He not only got the extension of unemployment benefits but he also got the 2% payroll tax deduction liberal economists have been advocating, along with the extension of the temporary tax credits included in the original stimulus bill (such as the enhanced earned income, child care and tuition tax credits) and the small business tax breaks the administration has advocated.
When added to the extension of the Bush middle class tax cuts, this package totals about $600 billion in additional fiscal stimulus, all of it in line with what liberal economists were advocating.
What did Obama have to give up in return? First, there were NO offsetting spending cuts to "pay" for the stimulus. What he gave up was $75 billion in tax cuts for the "wealthy" and about $20 billion in estate tax cuts beyond what Obama wanted.
The interesting things about the concessions Obama made is that, while not the most effective forms of stimulus, both represent some additional stimulus rather than a reduction in stimulus in the name of "fiscal responsiblity."
As a pro-stimulus Republican (maybe the only pro-stimulus Republican in Ameerica) I'm thrilled by what Obama got in this package. Of course, I also support what the Republicans got out of it. Together with the Fed's "quantitative easing" I think we may be back on the way to a real recovery.
So far, the only person I hear expressing anything remotely like this is former-Clinton aide John Podesta, who says this is the closest thing we're likely to see to a second stimulus package in this political environment. Frankly, I doubt the new Republican majority in the house would even have supported this compromise.
1:29 p.m.
Dec 8, '10
Posted above: Oregon Republican tries best at Chicago style "kiss of death" with Obama. Fails.
1:32 p.m.
Dec 8, '10
I hope you're right. As I was reading your post, when you wrote that "this package totals about $600 billion in additional fiscal stimulus," my first question was going to ask whether indeed you thought this or the assorted barrage of "stimulus" packages were actually functioning as fiscal stimuli. Apparently you do.
The only thing I am sure of is that economics is a hard reality and a very soft science. If anyone knows how to "fix" this economy I don't know that we've found them.
It was so easy (imo) to see the insanity and unsustainability -- almost the evil -- of the real estate bubble. I saw it at least as far back as 2000. Common sense should have applied, but was not applied. I am not convinced that common sense shouldn't or won't apply again.
The stimuli is certainly "above" -- or beyond -- any common sense test.
1:43 p.m.
Dec 8, '10
One correction: Apparently Ezra Klein has the same view on this as John Podesta, i.e., the stimulus Obama got was more than worth the tax breaks he gave in on.
I have read that Congressman DeFazio is opposing this, but he at least is consistent. He also voted against TARP and the Obama stimulus bill. I think he's been wrong on all three, but as I said, at least he is consistent.
4:33 p.m.
Dec 8, '10
A good comparison of the Obama and Republican plans and the final compromise can be found in Compromise Tax Cut Plan Tilts Heavily in Favor of the Well-Off by Citizens for Tax Justice (CTJ)
4:43 p.m.
Dec 8, '10
Earl Blumenauer just issued a statement on the deal, urging his colleagues "to help the President and our country by rejecting this expensive and ill-advised proposal."
5:51 p.m.
Dec 8, '10
It's interesting, Chuck, that even the analysis in your link to Citizens for Tax Justice (which basically discounts any stimulus attributable to tax breaks for high-income taxpayers) admits that the compromise plan provides more stimulus than Obama's original proposal.
I would love to hear from Congressmen Blumenauer, DeFazio and Wu what kind of plan they think can pass both houses.
6:10 p.m.
Dec 8, '10
As a Democrat that cares about deficits I will be happy if the bill fails and we go back to Clinton tax rates for everyone. Most Dems keep saying they want to make the middleclass tax cuts permanent. The truth is that we cannot finance government if we do so.
I am aware that doing this in the middle of a recession is not a good thing to do, but the negative impact is not huge at a macro level and the improvement in the financial standing of the government may offset much of the anticipated damage. I also know that it will make it harder for Republicans to make spending cuts if the deficit shrinks and passage of this big tax cut will ensure the death of many programs that I and other Dems hold dear.
6:13 p.m.
Dec 8, '10
Let me share with you the following: “We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics,” FDR told a Treasury official in 1941.
Obama has betrayed our trust time and again and now has recklessly put SS in danger with the payroll tax reduction. He is a disaster and needs to be primaried.