On Friday, the Republican-dominated U.S. House passed a bill to eliminate the current federal estate tax or, as the GOP refers to it, the “death tax.” The House vote was surprisingly lopsided, as several Democratic representatives crossed party lines to vote for the Republican-led bill. While some alteration and reduction of the tax is necessary, the Republican bill is imprudent and will solely benefit the wealthy. The Democratic proposal — although defeated — is far more appropriate and deserves consideration by the Senate.
The current estate tax is levied only on inheritances valued at more than $675,000 — a threshold that exempts 98 percent of inheritances from the tax. Additionally, fully half of the estate-tax revenue has been paid for by inheritances valued at more than $5 million. Republicans are attempting to entirely eliminate the tax gradually over 10 years, at a total loss of $105 billion and an annual loss of $50 billion.
The Democrats’ proposal is significantly less costly and still preserves an important source of tax revenue. This proposal would almost double the amount of individual exemption from $675,000 to $1.1 million and reduce each bracket’s rates by 20 percent. To protect farms and family business from excessive inheritance taxes, the Democrats would raise the exemption level from the current $1.3 million to $2 million. The total revenue loss would be one-fifth of the GOP proposal at $22 billion.
President Clinton has promised to veto the GOP bill, although he would consider a compromised version similar to the Democratic proposal. The estate taxes do need to be revised and slightly reduced but not entirely, as Republicans demand.