Unemployment is near 10 percent. Long-term unemployment is at a record high. Teachers are being laid off across the country and state governments are slashing services to the bone. $80 billion could do a lot of good addressing any of these problems.
However, the U.S. Senate is considering spending that much money on something else: cutting taxes for the richest 0.2 percent of households in the country.
For months, Sens. Jon Kyl (R-AZ) and Blanche Lincoln (D-AR) have been on a quest to cut the estate tax, or the tax that the federal government levies on inheritance. And despite its serious impact on the budget and negligible effect on the electorate at large, their proposal is being taken seriously.
Before getting into the merits of their proposal, here's some background. The 2003 Bush tax cut included a gradual phase-out of the estate tax, from its 2001 level of 55 percent with a $1 million exemption to its complete repeal this year. However, to make the long-term cost of the cut seem less severe, the legislation stipulated that the tax come back in 2011 at the 2001 level. At the time, Bush's team believed that Congress would never reinstate the tax, after having lived for at least one year without it.
Proving Bush's strategy at least partially incorrect, the House of Representatives has already passed a bill permanently setting the estate tax at the 2009 level, which is a 45 percent rate with a $3.5 million exemption. But Kyl and Lincoln want to cut this to 35 percent with a $5 million exemption. Their cut costs $80 billion more than the House bill and $440 billion more than the budget baseline.
And all of that money would go to cut a tax that 99.8 percent of households in the U.S. will never pay. In fact, 62.5 percent of estate tax revenue comes from estates worth more than $20 million. Another 35 percent of the revenue comes from estates worth between $5 million and $20 million. The simple fact is that only the ultra-wealthy -- the Paris Hiltons of the world -- are subject to the estate tax.
The estate tax receives so much attention because there is a significant amount of misinformation circulating about it. This is due to a concerted effort by conservatives and wealthy corporate families to re-label it the "death tax," with the intent of fooling everyone into thinking that the IRS will be looming over them on their death bed, demanding payment. One organization in particular, the Policy and Taxation Group, has fueled this campaign, funded by money from the Gallo and Mars family fortunes.
Even Lincoln herself helped spread this tall tale, saying "I don't think there's any American out there who believes you should work all of your life to find that when you die, 55 percent of [your estate] has got to go to the government."
I bet she's right that no one believes that. But no one is trying to make it the law either.
Because the estate tax is levied on marginal income, it is only paid on the amount in excess of the exemption. To put it plainly, if the exemption is $3.5 million, the first $3.5 million of the estate is passed on entirely tax free. Tax is only paid on the first dollar above that amount. So an estate worth $3,500,001 would have a tax bill of .45 cents under 2009 law.
The average effective rate -- the amount paid as a percentage of the entire estate -- for those subject to the estate tax is about 14 percent. There isn't a mass of grieving widows who have to hand over half of everything they own to the government.
Critics of the estate tax also contend that it adversely affects small businesses and family farms. This, too, is untrue. If 2009 law were made permanent, only 140 estates that could be considered farms or small businesses will owe any tax at all, and "all but a handful would have sufficient liquid assets on hand (such as bank accounts, stocks, and bonds) to pay the tax without having to touch the farm or business," according to the Center on Budget and Policy Priorities. The Lincoln-Kyl plan would spend tens of billions to cut this already small number down to 40.
Kyl and Lincoln have said that they plan to find spending offsets for the $80 billion difference between their cut and the 2009 law, raising the prospect that Congress will actually increase revenues -- which could be spent on any number of things -- in order to cut taxes for the richest of the rich. It's an absurd notion, but it garnered the attention of Sens. Max Baucus (D-MT) and Charles Grassley (R-IA), the chairman and ranking member, respectively, of the Senate Finance Committee.
Fortunately, some progressive lawmakers have started to push back against Lincoln and Kyl, with Sen. Bernie Sanders (I-VT) saying "the idea that we would make significant exemptions within the estate tax to give more tax breaks to the top three-tenths of 1 percent is nauseating." And he's absolutely right. Adopting the Lincoln-Kyl cut would be a sad indication of where Congress' priorities truly are.
Pat Garofalo is the Economics Researcher and Blogger for WonkRoom.org at the Center for American Progress Action Fund. His writing has also appeared in The Nation, the Guardian, the Washington Examiner, and at AOL News.