The Wonk Room

Big Business Throws Its Support Behind Lincoln-Kyl Estate Tax ‘Compromise’

Thanks to a Bush-era accounting gimmick, the estate tax is set to vanish entirely in 2010, and come back in 2011 with a 55 percent rate on estates over $1 million. 2009 law stipulates a 45 percent rate on estates over $3.5 million ($7 million for a couple). The Bush administration, in crafting the tax this way, was banking on Congress getting squeamish about reinstating the tax after a tax-free year, thus leading to an effective repeal.

Fortunately, the gimmick has not taken hold, and there is a concerted effort in Congress to ensure that some sort of estate tax stays in place for 2010 and beyond. Thus, the question becomes the rate at which the tax will be set.

The Obama administration has proposed making the current rate permanent, while Sens. Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) are stirring up interest in bringing the rate down to 35 percent and raising the exemption to $5 million ($10 million for a couple). And here’s the wildcard in the debate: Big Business, not seeing a full repeal in the tea-leaves, has thrown its support behind the Lincoln-Kyl plan:

A letter to members of Congress from forty-six business associations shows that industry lobbyists are putting their muscle behind a compromise, even if it means putting aside the long-held industry goal of repealing the tax on inherited wealth…Groups signing the letter include the American Farm Bureau Federation, Food Marketing Institute, National Association of Manufacturers and U.S. Chamber of Commerce.

On the one hand, Big Business’ decision to forego pushing for a full repeal is a good sign. As Chuck Collins, co-founder of Wealth for the Common Good, pointed out, “sometimes you can’t declare victory until the other side concedes defeat.” However, the Lincoln-Kyl alternative is a not a compromise worth making. The plan would cost $250 billion, 99 percent of which would go to the heirs of multi-millionaires.

It’s worth remembering that as recently as March, the Chamber of Commerce called for sending the estate tax “to the grave once and for all.” The business community has made the calculation that a repeal is not happening now, and thus it should put its weight behind watering the law down as much as possible. Bill Rys, tax counsel for the NFIB, admitted as much, saying that business groups “think [Lincoln-Kyl is] a good solution right now.”

As Warren Buffett put it, “dynastic wealth, the enemy of meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward plutocracy.” Even if it can’t get a full repeal now, the business lobby is angling to gut the estate tax, costing the country valuable revenue — raised from those most able to pay — in a time of economic distress.