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Senate Wants To Index The Estate Tax Exemption

I reported yesterday that those deficit hawks in the Blue Dog coalition – aided by the White House – want to punch a $230 billion dollar hole in the budget by making the estate tax permanent at 2009 levels, instead of reverting back to the levels from before George Bush pushed through a change in law.

Never one to cede ground on talking the talk of fiscal probity while shoveling as much money as possible to the wealthy, Democrats in the Senate want to do the same, only index the exemption figure to inflation. Under the House plan, the first $3.5 million dollars of inheritance is exempted from the tax (the old rules had only the first $1 million exempted). Obviously, Senate ConservaDems feel that before too long, $3.5 million will barely be enough to get by, so we have to go ahead and index that sucker. This is from Congress Daily (sub. reqd.):

Top Senate Democrats today said they would favor permanently extending the estate tax at 2009 parameters if it is indexed for inflation, a position at odds with the permanent estate tax fix headed to the House floor Thursday.

The House bill would extend the current estate tax rate of 45 percent with an exemption for up to $3.5 million in inherited assets per spouse, at a $234 billion cost over 10 years. But that plan does not index the exemption threshold for inflation, as Senate Finance Chairman Max Baucus and Budget Chairman Kent Conrad prefer.

Baucus and Conrad said although health care was the primary focus at the moment, the Senate would have to deal with the estate tax before Dec. 31, when it expires. Unless Congress acts, the estate tax would disappear in 2010, only to snap back to its pre-2001 parameters of 55 percent and a $1 million exemption the following year.

“I think there will be an attempt to deal with that before the year is out,” Conrad said. “We should have $3.5 million per person indexed for inflation. We shouldn’t go to zero next year and then go back to a $1 million exemption. That truly makes no sense.”

(Yes, Kent, it makes no sense to tax inheritance after the first million dollars. None at all. What do we want to do, make the winner of the Upper Class Twit of the Year competition have to go out and get a job?)

Indexing would cost the country an additional $23 billion dollars, which would go directly to wealthy scions inheriting over $3.5 million dollars from their benefactors.

If you believe Congress, all of this would require “offsets.” (Although the Senate reportedly doesn’t like any of that nastiness – but Social Security is bankrupting us!) At a time when unemployment is rampant, people are losing their COBRA subsidies and thus their health insurance, and everyone’s scrambling to pay for health care reform, if they can scrape up some offsets, I can think of about 200 things they could go into that would be better than the pockets of the uber-rich.

Never fear if you fall in that crucial $3.5-$5 million category, however – certain Senators from Nebraska and Arkansas are looking out for you:

Senate Agriculture Chairwoman Blanche Lincoln and Senate Minority Whip Kyl are pushing a more generous measure that would cut the rate to 35 percent and boost the exemption to $5 million per spouse. That measure has the potential to pick up several moderate votes as well as nearly all Republicans, if Senate leaders allow a vote.

Sen. Ben Nelson, D-Neb., said he preferred the Lincoln-Kyl approach but stressed he had not made up his mind. “I’ll have to see what the options are when it comes down to that,” he said.

These people should have their faces up on a Wanted poster.

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David Dayen

David Dayen