Nothing better illustrates the cynicism and opportunistic behavior of Tom DeLay's brand of strong-arming Congress than the charade surrounding their efforts to eliminate the inheritance tax.
At a time when a growing number of middle-income American families are forced to pay the alternative minimum tax, the Republican leadership is again fixating on the inheritance tax. This legacy from Teddy Roosevelt and the progressive era is a tax on significant wealth, the bulk of which is most often accumulated capital which has never been taxed in the first place. The estate tax usually falls on people who haven't earned it and are in the easiest position to pay: think Paris Hilton.
Outright repeal has actually been opposed by some of America's wealthiest citizens: think Warren Buffett. Indeed the father of America's richest person, Bill Gates Sr., wrote a book about why the elimination of the inheritance tax was a bad idea.
Throughout my 10 years in Congress, I supported reforming the tax- to raise the award exemption entirely, adjust the rates to be more gently graduated like it used to be, and provide deferral for owners of closely held businesses that wanted to continue in operation. We've all heard about having to "sell the farm" in order to pay the inheritance tax after Dad died. While it seems that there have been no cases identified where somebody actually had to do that, there's no doubt that the death of a principal owner of a closely held business may occasion the forced sale of the business to satisfy the inheritance tax liability for people who didn't plan carefully.
I have long felt that if the remaining owners of a closely held business wanted to continue the operation then the inheritance tax should be deferred until they wanted to cash in their equity. This approach--adjusting for inflation, modifying the rate, and deferring until people want to sell--has, without exception, met the concerns of people who have contacted me.
I've met with associations representing closely held businesses, distributors, dealerships, and contractors for whom this is an increasingly preferred option, especially after they witnessed the travesty of the approach of the Republican leadership.
Tom DeLay and his cronies were not interested in solving a problem; they were interested in having a political issue that they could milk shamelessly for campaign contributions. The reforms and compromise outlined above, which would be supported by an overwhelming number of Republicans and Democrats alike, wouldn't break the bank now or in the future as deficits explode with the retirement of baby boomers and the certain increase in debt payments as interest rates dramatically increase in the years ahead.
Instead DeLay and company launched a bizarre 10-year plan phase-out of the inheritance tax, which would be eliminated entirely in the year 2011 and then reinstated the following year; they repeal the repeal. This produces a scary scenario, allowing certain rich people to get tens of millions of dollars more if Grandma dies in 2011 than if she lives to January 1, 2012.
All this is ironic because in their zeal to help the super-rich--the top 0.1% of Americans--house Republicans and the Bush Administration are actually working against the interest of the upper middle, very comfortable class. The approach to not fix the alternative minimum tax and to push for their version of repeal ends up actually working against the interests of the majority of wealthy Americans.
By failing to make a structural change in the alternative minimum tax they are increasingly subjecting an ever larger number of Americans, who are by any measure comfortable (if not rich), to the alternative minimum tax that was designed to catch the superrich. There is a further irony that the relentless expansion of the alternative minimum tax is soon going to reach over 30 million American families by including those making $60,000 to $120,000 a year who simply have the misfortune of owning their own home, raising their families, and saving for the future.
Many of these families, in addition to paying the alternative minimum tax and the increase complexity of their tax return, would actually end up paying more in the inheritance tax as well, even if the Republicans have their way. Because the little noticed but deadly provision would eliminate the "stepped-up basis" provision where people who currently inherit property at the value at the time of death, not its value when the person who passed away bought the property. This means that thousands of Americans inherit million of dollars every year and don't have to pay a capital gains tax.
The provision under the Republican approach to eliminate stepped up basis disguises the true cost of this proposal by collecting a capital gain. It raises this money from the "merely rich," the people who will inherit between 1.3 million and 10 million dollars. They will not only pay more under the "repeal" proposed by the Republicans, the program will provide an accounting and recordkeeping nightmare by having to go back and find out what everything was worth at the time that Granny or Uncle Ralph first bought it. Of the 60,000 to 70,000 estates with any tax liability the lowest 60,000 will pay more so that the people who truly are very wealthy pay less.
Only in the Washington world that Tom DeLay did so much to create, would this escape notice by the popular press and so many of the very people who have been following the Republican Party line. Break the bank. Be unfair to many well-off Americans while avoiding a reasonable solution that would solve the problem and allow us to move on. That is the Tom DeLay approach.
The good news is that more of the people involved are starting to look behind the details and the charade and with luck perhaps we can excise the ghost of Tom DeLay and return to reasonable fiscal and tax policies.