Amid Ballooning Federal Deficits, Estate Tax Should Be Reinstated

With each passing week that Congress fails to restore the federal estate tax that went "poof" at the end of 2009, the prospect grows that rich folks who die this year will escape scot-free.

Amid growing concern across the political spectrum over mounting federal deficits, it's hard to fathom how legislators could countenance the roughly $20 billion revenue loss that would result from letting estates go untaxed this year. Yet the prestidigitation with which legislators have made a now-you-see-it, now-you-don't charade out of the levy over the past decade seems even more unfathomable.

Its disappearance in 2010 marks the culmination of a 10-year phase-down enacted in 2001—that was when Republican ascendancy, budget surpluses, and branding as a "Death Tax" made it easy pickings. But even then President Bush couldn't muster the votes needed for its permanent repeal. And in order to satisfy arcane budget balancing figurations, the tax is due to be reinstated with a vengeance in 2011, reverting to 2001 exemptions that are far lower and a tax rate that is much higher than those applicable in 2009.

The Obama administration has straightforwardly recommended—and prior to the witching hour last December, the House approved—a bill making the 2009 ground rules permanent. These include a $3.5 million exemption from the tax and 45 percent tax rate on the value of an estate in excess of that.

However, the Senate remains tied up in knots over how to proceed—with no unraveling in sight. The stalemate isn't over whether to let the exemption revert to $1 million and the tax rate to 55 percent in 2011, as will happen if the Senate fails to act. Few senators favor that; nor is there presently a hue and cry for repealing the Death Tax altogether.

Rather, all of the Senate's 41 Republicans and 10 Democrats have shown support for a plan co-sponsored by Senator Jon Kyl (R., AZ) and Senator Blanche Lincoln (D., AR) that would raise the exemption to $5 million and lower the rate to 35 percent. But while Kyl-Lincoln may command a majority, there's no way it can get the 60 votes needed for approval, especially given the fact that its resultant revenue loss would have to be offset by raising some other source of funding under the pay-as-you-go requirements that Congress recently adopted.

On the other hand, Democrat leaders have been unable to wean away enough Kyl-Lincoln adherents to get the 60 votes needed for restoration of the status quo ante (i.e. the 2009 standards).

The stalemate is further complicated by the issue of whether reinstatement of the tax at any level should be retroactive to the beginning of this year. The Supreme Court has upheld the Constitutionality of making a tax increase retroactive. Yet the longer the period of lapsed time involved, the harder it is to justify. So with each passing month of inaction, the better the chance that rich people who die this year will escape taxation. And gallows humor about a spate of year-end trips to Amsterdam for assisted suicide or pulling the plug on grandma isn't entirely laughable.

Less than one-half of 1 percent of the populace have estates that are subject to taxation, so it's hard for me to understand why there should be such a hullabaloo over the tax. Hardships on family farmers and proprietors are the negative results most frequently invoked as grounds for its repeal—imposition could force the sale of their property or business. But the law has long allowed for the tax to be paid over up to 15 years to protect heirs against this contingency.

Speaking as one of the fortunate few who is subject to the tax, I don't begrudge seeing a reasonable portion of my estate go to reduce the huge national debt that's being dumped on the children and grandchildren of all Americans my age rather than just to benefit my own family.

Speaking also as someone who has devoted a lot of attention over the past year to the workings of the U.S. Senate, or lack of same, I've become increasingly disturbed by its dysfunction. It's not just the partisan extremity to which the leaders of both parties have increasingly resorted that concerns me. It's also the ways in which a single senator can hold up the workings of the entire body.

Under the Senate's archaic rules, it takes unanimous consent for any measure or appointment requiring Senate confirmation to be brought up for consideration or a vote. This means a single objector can block action and, worse yet, can do so anonymously by implementing what are known as "secret holds."

Granted, through the use of cloture, a super-majority of 60 senators can overcome these obstacles and allow a majority to work its will. But the tribulation entailed in getting to a cloture vote means that this procedure can only be invoked infrequently on matters deemed to be of the utmost importance such as health care or so-called Wall Street reform. (Indeed, in observing proceedings on the latter, I was impressed that the Senate needs reform at least as much as Wall Street.)

What worries me now is that legislation to reinstate the estate tax won't rise to these proportions and that the Senate will be stymied from taking action on the Obama administration's sensible, middle-ground recommendations as approved by the House. And there are a host of other 2001 tax cuts expiring at the end of this year that could face a similar stalemate.