Estate tax repeal dead, should stay that way

The U.S. Senate's rejection of a permanent repeal of the estate tax should put this issue to rest in Congress — at least for the time being.

But it is sure to be an issue on the campaign trail this fall, as the GOP seeks to paint Democrats as opponents of simple fairness and Democrats seek to portray Republicans as backers of a giveaway for the super-rich.

That poses an interesting situation for Hawai'i Democratic representatives Neil Abercrombie and Patsy Mink.

The delegation has sent mixed signals on this admittedly complex issue.

What happened is that Congress last year approved a gradual elimination of the estate tax, wiping it out entirely by 2010. But to make the books balance, they pretended that estate taxes would revert to current levels in 2011.

But all along they hoped to make the repeal permanent, which is what the current round of votes is all about.

Mink switches vote

When the House attempted to override a Bill Clinton veto of a similar permanent elimination bill, we were sorry to discover that both Mink and Abercrombie voted with Republicans to override with the goal of abolishing the estate tax permanently. That effort failed.

This session, when the House Republican majority again pushed for a permanent repeal of the estate tax, Mink voted against the idea.

Rep. Abercrombie continues to argue that a repeal would go a long way toward saving small businesses, farms, condos and the like from the jaws of the taxman when decedents attempt to pass family businesses on to their children. He also argues that the estate tax has an unusual impact on Hawai'i, where local culture emphasizes the saving and passing on of family assets.

These are worthy sentiments, of course, but they could be be accomplished simply by raising exemptions to a sensible level. In fact, current law acknowledges that point by offering generous exemptions that leave fewer than 2 percent of any estates paying taxes at all.

$50 billion tax break

In 1997, 2,400 estates paid nearly half of all estate taxes collected that year; repeal would have given those wealthy heirs an average tax break of $3.4 million. Repeal of the estate tax would give a $50 billion tax break to a very few and punch a huge hole in the national budget.

The estate tax became law during the administration of Theodore Roosevelt, who was concerned about the the vast fortunes being accumulated in the first decades of the industrial age. Roosevelt believed that great inequality of wealth was unhealthy for a democratic society, and he even believed that young people were better off making their own way than living off the fruit of their parents' success.

That thinking has all been lost in the current debate. Lost also is the fact that much of the estate taxes that are paid are on wealth gathered through capital gains that never had been taxed.

Repeal of the estate tax is not primarily about saving family farms and mom-and-pop establishments; it's about making the rich richer.