As the fiscal debate focuses on whether to raise the federal income tax rates for the top 2 per cent of Americans, other possible tax increases have taken a backseat in the debate. But a group of billionaires led by Warren Buffett and George Soros to change that — by raising rates for the much-maligned estate tax.
The wealthy taxpayers — organised by Responsible Wealth, which advocates for “progressive tax policies” — have signed a pledge calling for a “responsible estate tax proposal” as part of any fiscal cliff deal. In addition to Buffett and Soros, signatories of the pledge include other left-leaning billionaires, including Bill Gates Sr., Richard Rockefeller and Abigail Disney, as well as politicians like former President Jimmy Carter.
Under the Bush-era estate-tax levels, couples are not taxed on the first $10 million (or $5 million for an individual) of the transfer of their “taxable estate” when deceased. After that, the estate is taxed at 35 per cent.
Responsible Wealth is calling for only the first $4 million of a couple’s income to not be subject to a tax. After that, it would be taxed at 45 per cent, which would gradually rise on the largest incomes.
It’s actually a more expansive proposal than President Barack Obama has supported, which calls for a $7.5 million exemption and a maximum 45 per cent tax level.
If the White House and Republicans don’t reach a deal, however, the estate tax rates are set to revert to Clinton-era levels, when estates valued at more than $1 million were taxed between 37 per cent to 55 per cent.
The non-partisan Tax Policy centre calculates that the difference between keeping rates at Bush-era levels vs. Clinton-era levels would be $370 billion in revenues over the period of a decade, while the difference between the Obama and Bush policies would be $115 billion in revenue.
The debate over the estate tax parallels the one over income taxes — Republicans want rates to remain at current levels, while Democrats want an increase. And wealthy individuals like Buffett, Soros, and others are again coming out and saying they will gladly pay more. But as Responsible Wealth Project Director Mike Lapham sees it, the estate tax is the “poor stepchild of the Bush tax cuts.”
“It’s shameful to leave revenue on the table from those who can afford to pay,” said Rockefeller, the great-grandson of industrialist John D. Rockefeller, said in a conference call organised by Responsible Wealth Tuesday.
John Bogle, founder and former CEO of The Vanguard Group, added: “If we’ve been privileged in life and weren’t paying our fair share of taxes, somebody else is going to have to pay them. It will inevitably be those who are less able to do so.”
“Every step, large or small, to come after that deficit is good,” Bogle said. “Who bears the burden? … Our position is that those who have most resources to bear the burden ought to step up to the plate.”
One reason why the estate tax might not be going up, however, is that raising rates on the tax is unpopular with Americans on both sides of the political spectrum. In 2010, Gallup found that voters placed top priority on the lame-duck Congress to “pass legislation that would keep the estate tax from increasing significantly next year” — ahead of other options like extending long-term unemployment benefits or ratifying the START nuclear-arms treaty with Russia.