Estate Tax Compromise?

As most readers of this blog know, repealing the estate tax is a really bad idea. It is one of the most progressive taxes on the books and provides a steady stream of much needed revenue. That hasn't stopped some lawmakers from aggressively trying to repeal the estate tax. Today, House Republicans introduced a compromise designed to win support from moderates in both parties.

The proposed compromise offered in the House exempts $5 million of an individual's estate, $10 million of a couple's, from taxation. Business groups and lawmakers successfully pushed for automatic increases to make sure that figure does not erode with inflation.

Estates up to $25 million would be taxed at rates equal to capital gains, currently 15 percent but scheduled to rise to 20 percent in 2011. Estates larger than $25 million would be taxed at rates twice that of capital gains, or 30 percent now and 40 percent when the scheduled capital gains tax increase takes effect.

Without providing an in-depth analysis, it should be clear that this proposal is still extremely problematic. The compromise would still result in a cut of nearly $280 billion dollars over the next ten years. Given the nation's precarious fiscal situation, tax cuts for the wealthy are simply bad public policy.

The efforts to get support from moderates in both parties are more interesting than the actual compromise bill. As reported by the New York Times yesterday, the new proposal contains major tax cuts for timber companies.

It includes a tax cut that would save timber companies about $900 million over the next three years, a new twist that could win as many as four more Democratic votes in the Senate.
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Two of the timber industry's strongest advocates are the Democratic senators from Washington,— Patty Murray and Maria Cantwell, who both voted with other Democrats against blocking a filibuster on the estate tax.

The Weyerhaeuser Corporation, the giant paper and forest products company, is based in Federal Way, Wash., and the state is a major timber-producing area.

Other Democratic Senators, such as Mark Pryor and Blanche Lincoln of Arkansas and Mary L. Landrieu of Louisiana, were co-sponsors of a similar timber tax cut last year.

Legislators from both parties admit that the timber cut has nothing to do with the estate tax, but that hasn't stopped elected officials from trying to hammer both proposals through Congress. It appears that the only way Republicans get muster enough support for this legislation is by dangling targeted tax cuts in front of Democrats. Not exactly the best way to restore public confidence in a town wracked by ethics scandels.