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The Estate Tax & The Fiscal Cliff: How'd we do?
January 03, 2013
This fall, Responsible Wealth & United for a Fair Economy made the strategic decision to focus our efforts on promoting a stronger estate tax as part of the fiscal slope negotiations. We’ve been heavily involved in rolling back the Bush tax cuts since 2001, but we knew there would be lots of other groups on that bandwagon. We figured Responsible Wealth’s greatest value added would be to get a bunch of really prominent individuals to say we should have a stronger estate tax. So we did.
Together with signers like Warren Buffett, George Soros, President Carter, Bill Gates, Sr., Abigail Disney, and Richard Rockefeller, Responsible Wealth put a stake in the ground saying we should have a $4 million per couple estate tax exemption and a 45% rate, rising on the largest fortunes. That was considerably to the left of Obama’s proposal ($7 million; 45%) and far stronger than 2012 law ($10 million; 35%). Unless you’ve been backwoods skiing and just made it back to your iPhone, you already know that both the Senate and House passed legislation that extends the $10 million per couple estate tax exemption and raises the rate to 40%.
Here’s the good news:
- We still have an estate tax.
- We got part of what we wanted in the negotiations: a 40% rate is better than 35%.
- This is the first time the estate tax has been strengthened in 28 years.
- With your help, Responsible Wealth made the estate tax part of the fiscal cliff debate. Prior to our December 11 teleconference, there was almost NO discussion of the estate tax. In the past two weeks, almost EVERY story about the fiscal cliff tax debate mentioned the estate tax.
- The GOP was forced to tip their hand and expose who they’re really concerned about. They made it clear in the 11th hour negotiations that keeping the estate tax as weak as possible for wealthy families was their top priority.
- The estate tax was finally indexed to inflation. Some Democrats don’t like this, because it means we’re stuck (for the foreseeable future) with an overly high exemption. But indexing in and of itself makes sense. If the original estate tax had been indexed for inflation, we likely would never have faced the past 12 years of challenges to the law.
Here’s the not-so-good news:
- The $10 million per couple exemption is still unnecessarily high, and the 40% rate is too low.
- The estate tax was once again used as a bargaining chip in the negotiation (as in 2010). While the GOP is unified in their staunch opposition to the estate tax, Democrats are mixed. If you look at the socioeconomic level of Members of Congress, and who they are married to, and who gives them 95% of their financial support, it’s no surprise that there are mixed feelings.
- The estate tax discriminates against gay and lesbian partners, since the spousal exemption only applies to married couples by the federal definition of marriage. So only the individual exemption ($5.12 million) applies.
- The federal estate tax remains “de-linked” from state-level estate tax laws, meaning states cannot automatically get a credit on federal estate tax payments.
What’s ahead on the estate tax:
- This is not the last word by any means. Opponents like Jon Kyl will still push to weaken or completely repeal the estate tax as they have done repeatedly since 2000. Wealthy people in particular will need to continue to speak up in favor of a strong estate tax.
- We are continuing to gather signatures on our Responsible Estate Tax proposal. To date, over 1,200 people have joined the initial 36 signers since December 11, including 130 wealthy signers.
- Most of the revenue from the estate tax comes from having a higher rate (think: really large estates). We will push for a higher base rate than 40% AND progressive rates up to 55% on the largest estates.
- The exemption level is about fairness. A couple with $10 million in assets (among the wealthiest .15% in the country) should not be able to pass on those assets tax-free to the next generation. Anyone with that amount of wealth has benefited greatly from what our country has to offer. We’ll continue to push—with your help—for a lower exemption.
If you haven’t yet signed our Responsible Estate Tax proposal, please take a moment to do so today.