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Print view: House Democrats have screeched and yelled. So why is their own plan so soft?
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SHORT ATTENTION-SPAN ESTATE TAX THEATER! House Democrats have screeched and yelled. So why is their own plan so soft? // link // print // previous // next //
THURSDAY, DECEMBER 16, 2010

Michelle Rhee unleashes Chris Matthews: We’ve seen a lot of uninformed garbage on Hardball over the past dozen years. Just imagine: As late as December 2007, Chris Matthews still thought that Barack Obama’s mother (and “maternal grandmother”) had been “Islamic.”

We know, we know—that’s hard to believe. But go ahead—see THE DAILY HOWLER, 12/21/07. This guy’s in a class by himself.

Chris has done it all through the years. In our view, he has been the most destructive cable news host, although he’s largely been repurposed as a cable news liberal. That said, Matthews staged one of his most offensive segments on last evening’s underfed program.

Chris knows nothing about public schools; in fairness, there’s no particular reason why he should. But is there any topic about which this $5 million man won’t blather, despite his manifest ignorance? Last night, Chris blustered and blathered about public schools, loudly complaining about various topics he plainly knows nothing about. Rhee, who may even know a bit more, wasn’t a whole lot better.

As we type, the transcript hasn’t been posted—but this was a disgusting performance. (To watch the full segment, click here.) Feigning outrage on children’s behalf, Matthews blustered, postured and wailed, displaying his vast lack of knowledge. We expect to return to this segment next week as we pursue some educational topics, including the results on those new PISA tests. But for today, we’ll leave it at this:

Chris blustered and flailed against social promotion, asking why children get promoted despite their lack of preparation. At this point, the analysts threw up their hands:

“Look who’s talking,” they sardonically said. Then, they posed a sardonic question: By what process do people like Matthews get promoted to cable host jobs?

What explain this fool’s promotions? “Don’t ask,” we incomparably said.

SHORT ATTENTION-SPAN ESTATE TAX THEATER (permalink): How does the estate tax work? Presumably, most people don’t know. (It’s remarkably hard to find out. More on this matter tomorrow.)

Yesterday, Ezra Klein noted a semi-puzzling fact at his Washington Post blog. “[T]he estate tax is going to dominate the final arguments over the tax deal,” he correctly said. Before we’re done, we’ll ask why that has been the case. But Klein then offered a quick review of the way the estate tax works:

KLEIN (12/15/10): The way it works is simple enough. There's an exemption level beneath which estates are not taxed, and a tax rate that applies to every dollar the estate is worth above the exemption. In 2001, we had a $675,000 exemption and a 55 percent tax rate. So if you were inheriting an estate worth $700,000, you had to pay a 55 percent tax on that final $25,000.

At the end of the Clinton years, only the first $675,000 of an estate was exempt from taxation. (That rose to $1.35 million if the estate had belonged to a married couple. Never mind where they got that figure.) But under the Bush tax plan of 2001, the exempted amount began to increase, while the tax rate began to go down. “By 2009, the exemption was up to $3.5 million [$7 million for a couple], and the rate down to 45 percent,” Klein wrote. “And in 2010, the estate tax was repealed.”

That’s how estates were taxed under Clinton, then under Bush—leading to this unusual year, in which estates aren’t taxed at all. Next year, though, the estate tax returns, even if Congress fails to pass the current proposed budget deal. “If no action is taken, [the estate tax] returns in 2011 with an exemption of $1 million and a rate of 55 percent,” Klein correctly noted.

That’s the same tax rate which obtained under Clinton, with a slightly higher exemption ($2 million for couples). Those are the rules which obtain next year if no budget deal is passed.

That’s the way the estate tax has worked over the past dozen years. This brings us to an ongoing dispute—and to an ongoing piece of theater, a bit of a minor con.

This con has been staged by House Democrats. It’s been aimed at us gullible liberals.

Oh, those fiery House Democrats! Klein was careful not to complain about their semi-peculiar conduct. But as he continued, he described the dispute in which they’ve engaged in the past week—a minor dispute they have presented as a major matter of conscience. In the following passage, Klein describes the way the estate tax will work under terms of Obama’s proposed budget deal. He then describes the alternate proposal made by House Democrats.

Klein’s prose gets murky at the start of this passage. Below, we’ll helpfully translate:

KLEIN: The dominant alternative to the estate tax's return—which had support from both Republicans and, sadly, Democrats—was the Lincoln-Kyl bill: A $5 million exemption with a 35 percent rate. This is the language that has been included in the tax deal.

So how much does this cost? With a $1 million exemption and a 55 percent rate—in other words, what will happen if we do nothing—the estate tax would raise about $700 billion over the next 10 years. The Lincoln-Kyl version would raise less than $300 billion. And the compromise most Democrats have coalesced around—which was the 2009 level, with a $3.5 million exemption and a 45 percent rate—would've brought in a bit less than $400 billion.

Let’s translate. The Lincoln-Kyl proposal is part of Obama’s proposed budget deal. It’s much “softer” than the Clinton-era estate tax: $3.5 million is exempted ($7 million for a couple); the remainder is taxed at 35 percent. House Dems have screeched about this proposal, expressing their fiery progressive fury. But uh-oh! They have also proposed a tax which is much softer than the tax which obtained under vile centrist Clinton.

Just to summarize, here is the Clinton-era estate tax system, along with next year’s three possibilities. We’ll assume the estate in question belonged to a married couple:

The rules which obtained under Clinton: $1.35 million got exempted. The rest of the estate was taxed at a rate of 55 percent.

The rules which will obtain next year if no budget deal passes: $2 million will get exempted. The rest of the estate will be taxed at a rate of 55 percent.

The rules which will obtain next year if the Obama budget deal passes: $7 million will get exempted. The rest of the estate will be taxed at a rate of 35 percent.

The rules which will obtain next year if the House Democrats’ plan is adopted: $5 million will get exempted. The rest of the estate will be taxed at a rate of 45 percent.

House Democrats have bellowed in the past week—even as they proposed a tax which is much softer (much less progressive) than the system which obtained under Clinton. (Their proposal is also much softer than the system which will obtain next year if no budget deal passes.) Are we trying to raise more revenue to reduce future deficits? That’s one of the House Democrats’ protestations. But uh-oh! In the following passage, Klein explains how much revenue the three proposals would raise in the next ten years:

KLEIN: So how much does this cost? With a $1 million exemption and a 55 percent rate—in other words, what will happen if we do nothing—the estate tax would raise about $700 billion over the next 10 years. The Lincoln-Kyl version would raise less than $300 billion. And the compromise most Democrats have coalesced around—which was the 2009 level, with a $3.5 million exemption and a 45 percent rate—would've brought in a bit less than $400 billion.

In our view, Klein was being polite in this passage; we’ll take a slightly different approach. The system slated to obtain next year would bring in $700 billion over the next ten years. (The rules which obtained under Clinton would have brought in a bit more than that.) By way of contrast, the much-despised Lincoln-Kyl plan would bring in just $300 billion. But uh-oh! Those fiery House Democrats don’t do much better! Their loudly ballyhooed “progressive” plan would bring in just $400 billion.

In short, their ballyhooed plan is substantially closer to Lincoln-Kyl than it is to the rules which obtained under Clinton. As compared to Lincoln-Kyl, the loudly-ballyhooed Democratic plan only generates an extra $10 billion per year! If we’re talking about deficit reduction, this is a tiny drop in the bucket when compared to the giant deficits currently being projected.

Which of these four estate tax systems is best? That is a matter of judgment. (For ourselves, we’d suggest using more than one tax rate.) But Rep. Jan Schakowsky and her fellow Democrats have been screeching and yelling in the past week, pretending that they have come up with a much more progressive plan. They have said the estate tax provision is their principal problem with the proposed budget deal. They’ve even suggested that they will scuttle the deal over that troubling provision. We know, we know: A person can view this conduct as a (constructive) form of negotiation. But here’s our question: Based on all the screeching and yelling, how many people would understand that their complaint concerns just $10 billion per year? That their proposal is much closer to the plan they despise than it is to the plan which obtained under Clinton? That their plan is much closer to Lincoln-Kyl than to the system which will obtain if no budget deal gets passed?

Have House Democrats been pimping a con? That is a matter of judgment. But here, as in so many matters, we see the way a relatively minor matter grabs the headlines in a debate—in a situation where few people understand the actual stakes involved, which are surprisingly small.

Our question: If these House Democrats are such fiery progressives, why have they proposed such a soft estate tax—a plan which is so much softer than the one which obtained under Clinton? When Schakowsky appeared on the December 7 Maddow show (see THE DAILY HOWLER, 12/15/10), a competent host would have asked her. But over the course of the past ten days, we have been mired in an installment of Short Attention-Span Estate Tax Theater. Schakowsky postured about Paris Hilton—and Maddow simply let her do so. The focus on the estate tax was never challenged. Larger questions about this proposed budget deal were pretty much lost in the shuffle.

In yesterday’s New York Times, Ray Madoff offered some sensible thoughts about the way the estate tax works. (Don’t be fooled by that headline!) Just a guess: Few people understand the way this tax works. More on this matter tomorrow.

Fiery progressive speaks: In yesterday’s Washington Post, Rep. Chris Van Hollen (D-Md.) offered this fiery op-ed column supporting the House Dems’ estate tax proposal. Question: Why is this “progressive” proposal so much closer to Lincoln-Kyl than to the plan which obtained under Clinton? Why does this “progressive” plan turn out to be so soft?

Rep. Van Hollen was full of fire—he even mentioned Paris Hilton! But why is the Democrats’ plan so soft?

Caught up in a bit of theater, Van Hollen forgot to explain.