Remember years ago when there was a lot of buzz about the federal estate tax “repeal” set to take place in 2010? It’s still law. But the thing that Congress didn’t make quite so public is that the repeal only lasts for one year. One. After 2010, the federal estate tax rolls back in at its pre-legislative limits. The exemption drops back to $1 million per individual and the old rates apply.
Most tax pros expected to see Congress address this issue much earlier. After all, Congress had nearly 10 years to do something about it. Only they didn’t. Rather than work on a compromise bill, Congress did a few years of the back and forth “all or nothing” nonsense that generally results in, well, nothing. When Sen Bill Frist (R-TN) became Majority Leader of the Senate in 2003, he pledged to make repealing the federal estate tax a top priority… and then a little something happened on March 20, 2003. The US went to war in Iraq.
The war in Iraq cost a lot of money. A lot. Estimates are that the war cost the US almost $3 trillion. Suddenly, with increased expenditures, support for tax cuts for the wealthiest 2% of Americans wasn’t quite as popular as it had been. Frist never pursued the repeal and other proposals to eliminate or drastically repeal the bill fizzled.
Five years later, the economy is even more damaged than before. Unemployment is creeping closer to 10%, the Dow has declined significantly since its heyday, foreclosures are up and home sales are down. It is, then, perhaps not the best time from a political to talk estate tax reductions. But now, Congress has little choice.
President Obama is well aware of the political dangers inherent in this one. Interestingly, while very few Americans are actually affected by the federal estate tax (currently, the tax does not apply to decedents with less than a $3.5 million taxable estate or $7 million for a married couple), it’s a hot button issue. Many Americans relate to the idea of a “death tax” whether they’d be affected or not.
With that in mind, President Obama has proposed freezing the federal estate tax at the 2009 level (again, exempt for individuals with less than a $3.5 million taxable estate or $7 million for a married couple). At that level, it’s estimated that only about three-tenths of one percent of estates will be taxable.
Some Senators are clamoring for repeal. But most have decided that it’s not a battle worth fighting; with less than 1% of taxpayers affected, there are more popular tax concerns that the estate tax repeal. Instead, there are indications that the GOP will present a counter proposal of a $5 million exemption ($10 million for a married couple) with lower marginal tax rates.
It will be interesting to see what happens going forward. If the economy turns around more quickly, it will certainly change the equation but not to the point of repeal. Most of us who have watched the repeal argument ebb and flow since the Clinton days (when the exemption was a mere $600,000) don’t expect a repeal under this administration – quite frankly, I didn’t expect one under the last either. The tax may change over the next few years but it’s not going anywhere.
It turns out that while the US has been facing record budget deficits, Iraq has been doing pretty well. US auditors have predicted a budget surplus of $80 billion in Iraq: 94% of that revenue comes from oil.
It’s not surprising. Oil revenues are at their highest point in years while the costs to Iraq are fairly small: the US is, of course, paying the costs of the infrastructure and other countries have forgiven the Iraqi debt. Good news for the wealthiest Iraqis, perhaps, but bad news for our Congressional officials. US taxpayers are understandably ticked off about the latest news – especially as oil prices in this country remain high.
Senator Carl Levin (D-MI), the Chair of the Senate Armed Services Committee, shares this outrage:
We should not be paying for Iraqi projects while Iraqi oil revenues continue to pile up in the bank, including outrageous profits from $4-a-gallon gas prices in the US. We should require that U.S. taxpayers be reimbursed for the cost of large projects.
A nice thought, but it won’t happen. In fact, I predict the opposite: US tax dollars will continue to pour into Baghdad despite the fact that Iraq has shown a surplus for the last four years.
And how much of that is due to US taxpayers? Not counting costs directly associated with the military, taxpayers have paid $48 billion in reconstruction costs since 2003 invasion of Iraq. Approximately half of those costs were spent on the oil and electricity industries, water systems and security. Iraq ponied up a scant $3.9 billion for those costs, despite Bush’s pre-war assurances that Iraqi oil money would pay for reconstruction. In fact, in 2003, then-Deputy Secretary of Defense Paul Wolfowitz told Congress: “We’re dealing with a country that can really finance its own reconstruction, and relatively soon.”
Hmm. Really?
Initial reports indicate that 32 people were arrested on Wednesday morning as part of protest to mark the fifth anniversary of the war in Iraq.
As initially reported, the protesters blockaded the IRS building as a statement in protest of the use of tax dollars to fund the war. I am not sure how many protesters actually showed up for the tax protest nor whether the activists feel that their efforts were successful.
My emails to the protest headquarters for more information were not returned.
This week, the US marked the fifth anniversary of the war in Iraq. President Bush is expected in his remarks on tomorrow to confirm that the war in Iraq was necessary, saying, “Removing Saddam Hussein from power was the right decision, and this is a fight America can and must win.”
He is also expected to note the toll that the war has taken on the US, including the deaths of almost 4,000 troops. He is not expected to mention the billions of dollars spent during the course of the war or what may happen to the military if the war continues.
Marches and protests have been taking place throughout the week to mark the anniversary, including in Washington, DC, where activists plan to blockade the headquarters of the Internal Revenue Service on March 19, 2008. The activists will gather at 7 am at McPherson Sq., 15th & K Sts. NW. From these areas they will march to the IRS main entrance at 1111 Constitution Ave. Once at the entrance, they will attempt to prevent the IRS from opening as usual. The plan is to call attention to the cost of the war and what some perceive as a collective responsibility to stop funding it – including by distributing flyers such as this (downloadable here as a pdf).
This is not a completely isolated event – though it may be singular in its scale. But, increasingly, Americans are protesting the war with their dollars – as in not paying them. In 2007, an estimated 10,000 Americans did not pay federal taxes or paid only a portion of what they owe as a means of protesting the Iraq war. There are even several popular web sites which explore various means of protesting through nonpayment, including the National War Tax Resistance Coordinating Committee.
It’s a really interesting concept – this idea of whether you should be forced to pay for expenditures that you may find morally reprehensible. Even Congress has considered the implications of continuing to fund the war on the backs of taxpayers. I’ve mulled this notion before. What do you think?
