"Fiscal responsibility" means a lot of things to a lot of people, and yesterday it meant that Republican Minority Leader Mitch McConnell outfoxed Democratic Leader Harry Reid, resulting in repeal of the estate tax so that folks who inherit huge fortunes -- $3.5 million and above -- no longer have to pay taxes on their gains. This was, of course, supported by many of the same people who think the government's budget is out of whack, but that the best way to deal with that is empty posturing, preferably with a commission, rather than getting more revenue.Democratic leaders, who weren't trying to repeal this tax but faced trouble from the usual suspects, have promised to take another bite at this apple and pass a bill next year to repeal the repeal and keep the current rate of 45 percent taxes on any inheritance over $3.5 million. Republicans and conservative Democrats want to cut the rate by 10 percent and make the exclusion $5 million. (They complain about family farms being destroyed, mostly, but the evidence is that most family farms aren't affected under the current law: only 65 are over the exemption, and only 13 might face liquidation to pay the tax, and even that is highly uncertain.) The only good thing is that the Democrats who support the tax have a pretty good fallback option: If nothing is done about the tax, it will automatically come back to force in 2011 with a 55 percent rate and a $1 million exclusion, which Republicans and their moderate friends in the Democratic caucus would abhor, though it would be good news for the deficit. Chuck Marr from the Center on Budget and Policy Priorities caught the ironies of these fiscal irresponsibles nicely in this statement:First, some of the same senators who say they will not vote to increase the federal debt limit on the grounds of “fiscal responsibility” have prevented the Senate from extending the estate tax. If it stands, their action will cost the government billions of dollars, all of which will go to the estates of the richest people.Second, while many of these same senators claim they are protecting family farms and small businesses, many more farm and business estates of people who die in 2010 will face tax increases than tax cuts if Congress allows the estate tax to expire. That’s because very few small businesses and family farms face the estate tax, but many small businesses and family farms have assets that have risen in value, such as their land or business. Under current law, many of these people pay no estate tax, and their capital gains taxes on that appreciated value are forgiven at death. But if the tax expires, their heirs could face capital gains taxes on the increase in the value of assets they may have acquired years or even decades ago.It's almost as if these senators don't really care about family farms and small businesses at all but are extremely concerned about lining the pockets of the already-wealthy.
-- Tim Fernholz
