Like some other observers, I think we are in a whole new ball game for the estate tax. While a middle course (freezing at this year's rates/exemptions) seemed to be gaining widespread acceptance and Obama seemed OK with it, the recession will change many dogma about wealth and income growth.
Perhaps the most important reason for the death of the “Death Tax” movement is what might be called the Paris Hilton affect. In 2001, with inequality mostly a buzzword among a few left-wing professors, it was easier to get public support for killing a tax on the wealthy. Many Americans felt they could become wealthy someday, too, so they opposed any punitive tax on their imagined futures. That was especially true in 2006, when Congress took up repeal again and Americans felt newly wealthy because of rising home values.
But in the intervening eight years, the nonwealthy actually became less wealthy and Americans realized they would be lucky to retire at all, let alone get rich enough to become the target of an estate tax. They also resented the rich Wall Streeters and corporate chiefs who lost so much of other people’s money and publicly paraded their wealth.
Capping it off was a populist branding campaign that was just as clever as the “death tax” brand. The term was “The Paris Hilton Relief Act,” suggesting that abolishing the estate tax would merely give more money to wasteful, dog-and-diamond-toting heirs such as Ms. Hilton. Mr. Obama used the term in 2006 when he said the “Paris Hilton tax break” would give “billions of dollars to billionaire heirs and heiresses.”
So while lobbyist strategy and internal bickering may have played a role, the real reason for the preservation of taxes on the wealthy is the public’s attitude toward the wealthy themselves. [More]
I waffle daily in my outlook for our economic future, but am confident there is another side of this chasm. That said, it cannot look like our recent past, if only because we are shaping it with our rescue efforts.
As those few of us who have largely escaped the ravages of deflation and income loss are slowly sucked into the maelstrom, the number folks who have a dog in this fight dwindles. Meanwhile the rising tides of resentment toward Wall Street is easily transferable to anyone with more wealth. Far fewer harbor even unlikely dreams of taxable estates, and the need for revenue will be enormous in 2010.
If we can settle for an estate tax with 2009 parameters, we'd be crazy not to do so. Once again allowing our farms to be the poster children for a repeal movement would only lump us in the company of those who are now most reviled in our society, and further damage our brand.