The U. S. House of Representatives took the first serious step toward fiscal sanity in eight years Thursday, and how pleasing it is to observe that Arkansas’ representatives made us proud — well, three of the four did. They voted to reinstate the estate tax next year, which will prevent a big surge in the federal budget deficit.
It was not a politically easy vote because the U. S. Chamber of Commerce and various rich men’s lobbies had succeeded in persuading many Americans — most of them by some accounts — that the federal government was going to tax away the poor widow’s mite through something called “the death tax.”
The estate tax has been on the books for nearly a century, but under an omnibus tax bill passed by Congress in 2001 it is scheduled to go out of existence next year, then to return in 2011 at the 2001 rates.
A Republican public-relations consultant came up with the idea nearly 20 years ago to refer to the estate tax as “the death tax” because it would lead everyone to think that the government was going to tax away much of the inheritance they intended to pass along to their heirs.
Here is the truth of that matter. Last year, only three of every 1,000 deaths in Arkansas left estates large enough that even a penny of estate tax would be owed. Under the bill passed by the House Thursday, that number will shrink even more, maybe to one in every 1,000 deaths.
No tax would be owed unless the net value of an estate exceeded $3.5 million, or $7 million for couples. The tax would be owed only on the part of an estate over $3.5 million, or $7 million.
Representatives Vic Snyder of the Second District, Marion Berry of the First District and Mike Ross of the Fourth voted for the bill. Snyder and Ross said it would restore $14 billion to the treasury starting next year and also give people some assurance about estate planning.
The tax rates and taxable thresholds will not be shifting every year as they have under the law passed by the Republican Congress and signed by President Bush in 2001. That law accounts for nearly half of the monumental $1.4 trillion deficit this year and several trillion dollars of the national debt.
Alas, Rep. John Boozman of the Third District stuck to the script. Explaining his vote against the bill, he said it was unfair for the government to tax hard-working people’s assets on their death and prevent their leaving assets to their children. He said it would mean people having to sell family farms and businesses to pay the taxes on their benefactors’ deaths.
It sounds frightening, but there is no record of people having to sell family farms to pay estate taxes, even when the taxable threshold was much lower.
The Republicans continue to raise the old shibboleths that the estate tax amounts to double taxation (a person pays income taxes on his fortune as he accumulates it and again upon his death) and that the tax is unfair to those inheriting the wealth.
Again, most of large estates have never been subject to income taxes because it is unrealized capital gains from the appreciation of stock and real estate.
If it is not subject to the estate tax, that income is never taxed even. The person inheriting the assets pays no income taxes upon them, unlike the unlucky family that has to pay state and federal income taxes upon all their income.
Now we must await the Senate. Senator Blanche Lincoln has been one of the loudest foes of the estate tax, claiming that it forces people to sell family farms to pay estate taxes. She has never been able to identify a single such instance.
If an estate is large enough to owe a tax, the heirs have 13 years in which to pay it. They will have 15 years under the House bill.
Senator Lincoln has gotten religion since voting for the mammoth tax cuts for the wealthy in 2001. Before that, the nation was running big budget surpluses and within a year of their implementation it was running big deficits.
Let us hope that her concern for the nation’s fiscal health now outweighs her concern for the handful of Arkansans who inherit vast riches each year.
We hope Governor Beebe and the Arkansas legislature take notice. Arkansas needs to restore its own estate tax, which it repealed after Congress phased out the federal tax.
If Congress restores the federal tax, Arkansas could collect a portion of it for its own depleted coffers by simply passing its own levy. It wouldn’t cost the taxpayers anything; Washington would in effect simply transfer a portion of its taxes to Arkansas.
In politics, you don’t get many choices so easy.
