This summer, with an eye to the approaching election, Republican Congressional leaders promised that they would relieve the tax burden on small, family businesses and married couples. Unfortunately, their proposals are likely to reward the extremely wealthy at the expense of poor and working-class Americans.
House and Senate Republicans, supported by a significant number of Democrats, passed bills that would eliminate the estate tax and the "marriage penalty" in the tax code. President Clinton vetoed both bills, setting the stage for a confrontation this November.
Proponents of the elimination of the estate tax and marriage penalty appealed to their Congressional colleagues on emotional and moral grounds. The Senate Republican Conference led the charge, vowing to "kill the death tax" and asserting that "no taxpayer should be visited by the undertaker and the tax collector at the same time." Senators told horror stories of family farmers and asset-heavy small business owners forced to liquidate in order to pay estate tax bills.
These stories do not square with the hard facts. The Republicans are capitalizing on the public's misconceptions about the estate tax and the "marriage penalty." The Republicans would have the electorate believe that farmers and small businesses would benefit from the repeal of the estate tax. In reality, the biggest beneficiaries are the extremely wealthy. Recent polls show that 17 percent of Americans believe that they will be affected by the estate tax. However, only 2 percent of Americans ever actually pay it. Estates worth $5 million or more paid half of the estate tax in 1997. Farmers, about whose troubles Republicans so eloquently speak, accounted for only 1 percent of the estate tax.
Currently, the exemption for a couple filing jointly for the estate tax is $1.35 million. In 2006, that will rise to $2 million. That means that only family businesses worth more than $2 million will be affected at all by the estate tax, assuming that the current law remains unchanged. In addition, special tax breaks already exist for family farmers and small businesses.
It is true that the estate tax is affecting more and more families each year. The strong economy has allowed many middle class families to become wealthier. The law should be changed to reflect this--the exemption level should be raised. The White House has proposed a $4 million exemption for couples; Vice President Al Gore '69 has proposed a $5 million exemption.
On the marriage tax issue, the Republicans have portrayed their bill as a tax cut to families that pay more as married couples filing jointly than they would if they filed individually. In reality, the bill cuts taxes for people paying a marriage "penalty," but it also cuts taxes for those receiving a marriage "bonus," i.e. people who pay less because they are filing jointly than they would if they filed individually. The bill helps married couples, but does nothing for single individuals.
In an ideal world, marriage should have no impact on an individual's tax status. People should not be rewarded for being married, just as they should not be rewarded for remaining single. Due to the quirkiness of America's tax code, that will never happen. Some people will always pay a little more if they file together; others will pay less. A bill that addresses the inequalities would be a welcome change, but a bill that simply gives a tax cut only to families who happen to be married does not address the basic issue at stake.
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