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Best scenario? Do nothing about estate tax, by @davidOAtkins

Will they cave on the estate tax?

by David Atkins

One of the lesser watched games of chicken coming during the lame duck session is the battle over the estate tax. As The Hill reports:

Business and farm groups are making a determined effort to rein in the estate tax before it expands significantly at the end of the year.

Thanks to a deal approved in late 2010, the estate tax is among a long list of fiscal issues awaiting action from Congress, including the extension of the George W. Bush-era tax rates and budget sequestration.

With a legislative logjam forming for the lame duck, lobbying groups such as the National Federation of Independent Business (NFIB) and the American Farm Bureau Federation are reminding lawmakers not to forget about their issue…

Business and farm groups, and many congressional Republicans, would prefer to see the estate tax abolished.

But with that an unlikely scenario, at least this year, GOP lawmakers are instead pushing to extend the estate tax parameters included in the 2010 deal. That deal set the maximum tax rate at 35 percent with a $5 million exemption, indexed for inflation after 2011.

Senate Democrats, meanwhile, have prepared a broad tax-plan package that would return the estate tax to the 2009 levels of a 45 percent rate for estates, with a $3.5 million exemption, while extending Bush-era rates on family income up to $250,000.

That Democratic plan is expected to get a Senate floor vote perhaps as soon as next week, while the House GOP proposal that would extend all the Bush-era rates and the current estate tax parameters is likely to see a vote shortly before the August recess.

If lawmakers do nothing before year’s end, the estate tax will revert in 2013 to a $1 million exemption and a 55 percent rate, levels that independent analysts say would hit many more estates than either the current Democratic or Republican proposals. That would come just three years after there was no estate tax at all in 2010.

Remember that under this scenario, the 55 percent rate applies only to every dollar over $1 million. Not to the first million. As with so much else in the discussion of the Bush tax cuts, the best bet here is to do nothing at all. Let the Republicans whine about all the nonexistent “small businesses” it would harm, while the Democrats take credit for making multi-millionaires pay their fair share. Just like the American people want.

The only tax policy that Democrats should be championing is extending the tax cuts for people making under $250,000 a year. Continue that message all the way through the November presidential election. And then, if the Republicans object and take hostages like basic services or treaties, use Presidential authority to hold other hostages–say, military base closures in red states, big agriculture subsidies or other corporate welfare disbursements.

The Democrats needn’t give any ground on further tax breaks for the wealthy. All they need do is sit back and watch Republicans get nervous.

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