Last week, I was sitting on a panel for the Pennsylvania Bar Institute. My topic was holding business interests in trusts. While many of the other panelists had to craft their talks in terms of federal estate taxes, my topic touched on a much broader range of issues – including a topic that is of concern to many small business owners: income tax.
Interestingly, that same day, just after one attorney passed me an article from the Inquirer claiming that Obama’s compromise plan for the federal estate tax was likely to be part of the overall budget, another attorney whispered to me: did you hear that Specter switched parties. I gasped out loud. So loud that everyone heard me. He did what???
Yes, it was true. Sen. Arlen Specter (RD – PA) jumped across party lines last week from Republican to Democrat. The move caused a lot of finger pointing within the Republican party with Specter blaming the party for having lost its identity; Andy Roth, the Club for Growth’s vice president for government affairs, countered that the party has lost support because it has “tolerated” moderates like Specter.
I think everyone in Pennsylvania, Democrat or Republican, has an opinion about what Specter has done and why he did it – as well as everyone outside of Pennsylvania. And this is a tax blog, not a politics blog, so I’m not going to make an effort to make sense of it myself.
But on Sunday, Specter made a comment that made me think about my speech earlier in the week. Specter said that he thought his defection would serve as a “wake-up call” to the GOP for hammering away at specific, targeted issues rather than courting the “broader big tent like we had under Reagan.”
And I thought back to the talks that my colleagues gave, peppered with references to the federal estate tax. The federal estate tax, the repeal of which has been a cornerstone of the modern Republican party’s economic platform, affects less than 2% of the population. We are often reminded by the party that the estate tax will kill small businesses – assuming that those businesses are a part of a taxable estate (currently, more than $3.5 million for an individual and $7 million for a married couple).
But here’s a more important statistic: nearly 80% of all businesses in the US are self-employed. Of those businesses who report having paid employees, 78% of those have fewer than 10 employees. (Source: US Census)
In other words, more small businesses will be affected by the income tax than the estate tax by exponential proportions. And yet, estate tax repeal has become a “hot button” issue for the GOP while small business income tax reform has languished. As a small business owner, this is frustrating.
Please don’t misinterpret what I’m saying: I am in no way claiming that the Democrats have a better plan. In fact, what has constantly been the downfall of Democrats over the last several years was a lack of any plan when it comes to real tax reform. Recent presidential campaigns (most telling in 2000 and 2004) showed a total lack of focus on one of the largest small segments of the population: small business owners.
But the GOP has gone in the other direction: a razor sharp focus on one or two key issues, like the estate tax. The lack of compromise when it comes to business and tax issues is driving away key moderates like Specter. The vote on the stimulus package is a key example. Specter says that on “one vote, the stimulus package vote, I was ostracized. I don’t expect people to agree with all my votes. I don’t agree with them all, at this point. But you’ve got to have some latitude.”
Social issues may be hot topics but they haven’t driven away moderates in the same way that economics have. I know plenty of pro-choice Republicans (the head of the Young Republicans club at my college was firmly pro-choice) and pro-life Democrats. Gay rights advocates sit in both parties – as do gay rights opponents. The war in Iraq, while divisive, was both supported and opposed by those in both parties. And both parties were willing to accept it.
But when it comes to taxes and spending, both parties have taken a firm bright line approach – all or nothing. No room for compromise. And in this particular climate – with this particular Congress – it has hit the GOP hardest.
Both parties are already brainstorming about upcoming elections, with the GOP in the midst of a very public makeover. One has to wonder how the defection of Specter will affect the transformation. If the party takes anything from what happened – no matter if you characterize it as good or bad – it should be that having a majority means more, not less, support. Do the math.
In an economy where folks are hurting, where jobs are being lost, where businesses are closing, where homes are being taken away, let’s stop trying to place blame and start looking for solutions. How about we not look for solutions that offer relief to a few people – like the repeal of the estate tax – but instead look at solutions that will provide relief to the majority of people – like income tax relief for small business owners. Those kind of “big tent” economic solutions will be what makes the difference for voters in the next elections.
