A couple of months ago, in his State of the Union, Bush said he’d “listen to anyone who has a good idea to offer” when it comes to shoring up Social Security. I realize he didn’t mean it, but just in case, someone ought to alert him to the Center on Budget and Policy Priorities’ latest report on the Estate Tax.
Specifically, the CBPP noted that congressional Republicans and the Bush White House want to eliminate the Estate Tax entirely by 2011. When one adds up the lost revenue and the higher interest on the national debt (Republicans admit they have no way of paying for the repeal), the “total cost of repealing the estate tax for a decade would be nearly $1 trillion.”
There are any number of reasons to reject the GOP’s plan as sheer lunacy, but the CBPP notes the positive impact the Estate Tax can have on bolstering the Social Security system.
Consider, for example, the proposal by former Social Security Commissioner Robert Ball that the estate tax revenues raised under a reformed estate tax be dedicated to the Social Security Trust Fund as a way to help close the trust fund’s shortfall.
The Chief Actuary of the Social Security Administration has estimated that maintaining the estate tax at the 2009 levels — with a $3.5 million exemption and a 45 percent top rate — would raise enough revenue to cover more than one-quarter of the shortfall in the Social Security Trust Fund over the next 75 years, as measured by the Social Security Trustees. The trustees estimate the shortfall to be 0.65 percent of GDP, while the revenue raised by this reform would equal 0.2 percent of GDP. The Congressional Budget Office projects a smaller shortfall (0.36 percent of GDP). Under CBO assumptions, the estate tax revenues collected under this reform would close about half of the 75-year shortfall. A reform with a $2 million exemption and a 45 percent rate (the law in 2008) would close an even great portion of the Social Security shortfall.
If the estate tax is not retained and no estate-tax (or other) revenues are dedicated to the Social Security Trust Fund, it will be necessary to reduce Social Security benefits or increase payroll taxes to a greater degree to restore solvency to the trust fund.
Republican officials, who claim to be worried about the fate of the Social Security Trust Fund, will jump at the chance to bolster it with a simple tax, already in existence, on millionaires and billionaires, right? Right?
It was, after all, Republican President Theodore Roosevelt who first proposed the Estate Tax in 1906. In a State of the Union address, Roosevelt said “The man of great wealth owes a peculiar obligation to the State because he derives special advantages from the mere existence of government.” The following year, he said, “Most great civilized countries have an income tax and an inheritance tax. In my judgment both should be part of our system of federal taxation.” Such taxation, he noted, should “be aimed merely at the inheritance or transmission in their entirety of those fortunes swollen beyond all healthy limits.” The tax became law in 1916.
And for over eight decades, no one much complained about the estate tax. Even Republicans who disapproved realized cutting it would be seen as an obvious sop to the rich. That is, until 2001 when Bush and his congressional allies put it near the top of their legislative wish list.
So, let’s give them a choice: $1 trillion in tax cuts exclusively for the super rich, or $1 trillion to shore up Social Security. Should be an easy one.