From Capitol Hill

Not Dead Yet
Estate Tax will survive the November election

By Eleanor Clift

The estate tax was a hot political issue when Republican pollster Frank Luntz renamed it “the death tax,” persuading millions of Americans without enough assets to be affected that Uncle Sam would fleece them at the grave, denying heirs what was rightfully theirs. Calling for an end to the estate tax became a rallying cry for Republicans throughout the nineties, but politicians don’t talk about it anymore, and there’s a reason for that.

Whoever wins the White House in November, John McCain or one of his Democratic rivals, Barack Obama or Hillary Clinton, the estate tax will still be with us. Planned giving officers at nonprofit organizations should rest easy. There is no way a Democratic Congress will allow the estate tax to expire, and Democrats will have the numbers in both the House and the Senate to work their will regardless of which party captures the White House.

In the House, a high number of Republican retirements, 29 at last count, make it a certainty that Democrats will increase their margin, a proposition that seemed shaky until recently. The Democrats took control in November ’06 in part because they won marginal districts that could revert back to the GOP. That looks unlikely in the wake of the Democrats picking up the seat held for two decades by former House Speaker Dennis Hastert, a sign that there is trouble ahead for the Republicans.

“It’s no mystery,” Rep. Tom Davis told The Washington Post. “You have a very unhappy electorate, which is no surprise, with oil at $108 a barrel, stocks down a few thousand points, a war in Iraq with no end in sight and a president who is still very, very unpopular. He’s just killed the Republican brand.” Davis is among those who have decided not to run for reelection. The Virginia congressman had been one of the party’s stars, rumored to run for the Senate, before he announced he would step down.

In the Senate, Democrats anticipate adding four or perhaps five seats to their majority, enough to get close to a filibuster-proof Senate. They won’t reach the necessary 60 seats, but if they get to 55 or 56, they would only have to pull over a handful of moderate Republicans, as opposed to the eight or 11 they need now depending on the issue. Independent Joe Lieberman caucuses with the Democrats, often votes with the Republicans, and is supporting McCain for president.

Obama and Clinton are on record wanting to scale back top-end tax cuts to pay for universal health care. Both oppose the elimination of the estate tax.

McCain is campaigning on a promise to make the Bush tax cuts permanent, but he doesn’t single out the estate tax, and twice in the Senate voted against its repeal. Even if McCain had a change of heart as president and decided to pander to his party’s most extreme anti-tax base, the Democratic Congress would checkmate him.

The law that is currently in place exempts estates from tax up to $2 million ($4 million for couples), with a tax rate of 45 percent above that level. The exemption increases to $3.5 million next year before it vanishes in 2010. If nothing were done legislatively, the tax would revert to a $1 million exemption from a tax rate of 55 percent. That was the law before Luntz and his clever phrase made the estate tax part of the political debate. 

The Democratic Congress is certain to jump into the breach. Ending the estate tax would be too big a hit for the U.S. treasury, an estimated $1 trillion in the first 10 years, with a damaging ripple effect in the nonprofit world as charitable giving in lieu of paying Uncle Sam is sharply reduced.

Democrats are unlikely to go back to the lower sum. A million isn’t what it used to be. Too many middle-class voters are millionaires these days, at least on paper, and they don’t like the estate tax by whatever name it’s called.