The vote was part of the 50-49 passage of Senate Budget Committee Chair Patty Murray’s budget resolution. The amendment calling for repeal of the estate tax was nonbinding. Indeed, the entire budget resolution process was something of a political sideshow because Murray made no effort to draft anything that will even be discussed by the other chamber (she seems to have emulated her House counterpart, Paul Ryan, in that regard). But the vote is an important symbol of the muddled state of the Democratic Party and the extent of Republicans’ success in demonizing nearly every tax. Democrats also voted to eliminate their own creation -- the medical device excise tax. The excise tax was an important component of Obamacare, and the vote symbolizes the precarious state of the unpleasant parts of the healthcare reform regime. (Let’s wait and see what happens in Congress when the mandate and penalty are supposed to kick in.)
The estate tax doesn’t raise much revenue. Republicans and their Democrats-in-name-only colleagues ensured that throughout the 2000s. Conservative Democrats repeatedly voted with Republicans to both raise the exemption level of the tax and lower the rate. Former Arkansas Sen. Blanche Lincoln tried to save her Senate seat in 2010 by joining with Republicans to undermine the estate tax (and gut the healthcare reform law). She lost her seat in a landslide anyway, but her estate tax compromise lived on for two years, until it was replaced by the permanent provisions in the American Taxpayer Relief Act of 2012. The exemption is now a whopping $5.25 million, and the rate is 40 percent. The permanent estate tax also features portability meaning that married couples can effectively double the exemption. Thanks to changes in the law, the estate tax is projected to raise $370 billion less than it would if Clinton-era rates and exemptions were still in place. That’s a two-thirds reduction in revenue.
Democrats claim they are committed to a progressive tax code. President Obama frequently calls on wealthy taxpayers to pay more. And ATRA did allow some Bush tax cuts for the rich to expire. But when it comes to details, Democrats frequently undermine the progressivity of the code. They favor capital gains tax preferences just as much as Republicans do. They largely oppose additional taxes on the banking and financial sector. Many Democrats, particularly senators, are committed to lowering the tax burden on multinationals and U.S. corporations. There is strong support in the Democratic Party for so-called repatriation holidays and a territorial tax system. And only 19 Democratic senators voted in favor of keeping the estate tax.
Sen. Mark Warner, D-Va., would retort that his colleagues support scrapping the tax only if other sources of revenue can be found. But what other taxes are as progressive as the estate tax? Where would this $200 billion in new tax revenue come from? It almost certainly would come from the middle class, or from cuts to tax expenditures that benefit a broader taxpayer base than the estate tax affects.
Again, the Senate vote on the estate tax was nonbinding, and the estate tax isn’t going anywhere any time soon. But voters should be wary of what Senate Democrats will support during any tax reform debate. If the Senate is willing to drop the only truly progressive tax in the code in favor of other sources of revenue, it is very likely that Republicans will call the tune during the elaborate compromises that make up tax reform. If that happens, then even if the tax base becomes broader, it probably will be a lot more regressive.