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Economist Mom

Dems fight over 3 percent of the tax deal

Congressional Democrats are making noise over the estate tax cuts, though they're only 3 percent of the total cuts. These cuts are deep and deficit-funded, but so is the rest of the agreement.

By Guest blogger / December 15, 2010

Senate Majority Leader Sen. Harry Reid Nev., gestures during a news conference on Capitol Hill in Washington, Tuesday, Dec. 14. The total cost of the tax cuts is $858 billion over the next decade, so why are they fighting so hard over the estate tax, which is such a small piece of it?

(AP Photo)


The Senate is about to pass the full tax cut “compromise,” but House Democrats are trying to hold out for a more fiscally responsible option. From the Washington Post’s Lori Montgomery (emphasis added):

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The strong Senate vote also appeared to have weakened resolve among House Democrats to block the measure when it comes to the floor this week. After meeting for two hours with rank-and-file lawmakers late Tuesday, senior Democrats said the House is likely to stage votes to change the terms of a revived estate tax that many Democrats view as overly generous to the wealthy.

Outraged by the agreement to exempt individual estates worth as much as $5 million from taxation, senior Democrats said they would press to lower the threshold to $3.5 million. They also want to impose a stiffer tax on larger estates, by setting the rate at 45 percent rather than the 35 percent demanded by Republicans and agreed to by Obama.

Those are the same terms that were in effect in 2009. The estate tax expired for the 2010 tax year but is set to spring back to life next month with much tougher provisions. House Democrats said their alternative would hit only about 6,600 of the nation’s wealthiest households while raising an additional $26 billion over the next two years compared with the Obama-GOP compromise - money that could be used to reduce the soaring national debt.

“There’s a real debate here between Republican proponents of tax cuts for the very richest Americans and our argument that that’s fiscally irresponsible and unfair to future generations,” said Rep. Peter Welch (D-Vt.), who was leading an effort to strip the tax package of what he called “indiscriminate giveaways” for the wealthy.

I agree that we shouldn’t need to deficit spend that additional $26 billion, which would benefit such a tiny fraction of the richest Americans who don’t exactly need any help–to spend or to save or to do whatever. But this is an even more perverse version of President Obama’s wish to “save” the $700 billion 10-year cost of extending the high-end Bush tax cuts while urging the deficit spending of the $2.2 trillion 10-year cost of extending all the rest of the Bush tax cuts. Note that the $26 billion House Democrats wish to shave from the estate tax cut, for fiscal responsibility’s sake, is just 3 percent of the cost of the ($858 billion) tax cut deal. It’s really more about House Dems trying to avoid getting completely shut out from the deal than about them saving the whole deal from fiscal irresponsibility.

What might really make this $858 billion tax cut “compromise” nevertheless “fiscally responsible”? From the policy piece the Concord Coalition issued a few days ago (emphasis added):