Outgoing US Sen. Phil Gramm, R-Texas, was furious when the Senate failed this week to enact his pet project: permanent repeal of the federal estate tax.
“This will be a campaign issue,” grumbled Gramm, who decided not to seek reelection as it became clear that his ties to Enron and other crumbling energy concerns were no longer a political asset.
Despite his lame-duck status, Gramm still likes to offer political advice, especially when it comes to lowering taxes for wealthy campaign contributors. And he is not alone. White House political strategist Karl Rove — who is paid with taxpayer dollars to run George W. Bush’s continuous campaign — told business owners after the vote: “Don’t look at it as a defeat. This is a war, and we need to make an ongoing commitment to winning the effort to repeal the death tax.”
Progressives can only hope that conservative candidates will, on the advice of Texans Gramm and Rove, try to make an issue of the Senate’s failure to shift even more of the federal tax burden onto the shoulders of working Americans. Cutting the estate tax is neither smart policy, nor smart politics. (A Greenberg/Quinlan/Rosner survey found in May that of all possible tax “reforms,” repeal of inheritance taxes is the one least favored by voters — the most popular, a tax cut targeted to low- and moderate-income Americans, was favored by a 6-1 margin over estate tax repeal. If Congress must tinker with the estate tax, the survey found that, by a 58-37 margin, voters favor reform over repeal.)
That may explain why three Democrats who are up for reelection this year shifted from support last year for Bush’s tax cut plan — which included a temporary repeal of the estate tax — to opposition this week to permanent repeal of the tax.
Yet, it was not just political realism that caused the Senate to stop a high-profile bid by the Bush White House and Republican leaders in the House and Senate to dramatically cut taxes for the richest 2 percent of Americans. Nor did the vote go the way it did because the majority of Senate Democrats got a sudden jolt of courage in the face of pressure from business groups — and wealthy families, including the heirs to the Mars candy and Gallo wine fortunes — that have lobbied hard for a decade to eliminate what conservatives dub “the death tax.”
The bid to permanently repeal the estate tax was undone over many months by activists who effectively delivered the message that permanent repeal would cost an already strained US treasury billions of dollars, causing a revenue gap that would have to be addressed either by cutting necessary programs or raising taxes on low- and middle-income Americans. (Permanent repeal would have cost $55 billion in tax revenues in 2011 — the first year of a long-term repeal — and $800 billion over the years 2012 to 2021.)
Dozens of progressive labor, religious and social-justice groups joined an anti-repeal coalition, Americans for a Fair Estate Tax, that hit on all fronts. It is fair to say that many of the most effective blows were struck by a member of that coalition that most Americans have never heard of: the group Responsible Wealth.
A project of Boston-based United For a Fair Economy — the people who brought America the satirical Billionaires for Bush (and Gore) campaign of 2000 — Responsible Wealth came up with the usual rational arguments against eliminating the estate tax: “Nearly half of all estate taxes are paid by the wealthiest 0.1% of the American population — a few thousand families each year. Repealing the estate tax would result in multi-million dollar tax cuts to this tiny sliver of Americans. The estate tax is our most progressive tax and an important source of revenue, as well as an incentive to recycle wealth through the non-profit sector.”
But they delivered the message in a language that Congress could understand: That of the very rich people that most members of the House and Senate strive so zealously to serve.
William H. Gates, Sr., Steven C. Rockefeller, David Rockefeller, Jr., George Soros, Paul Newman, Ted Turner, Norman Lear, Ben Cohen and more than 900 VIRPs — Very Identifiable Rich Persons — signed a letter to Congress that began: “We believe that permanent repeal of the estate tax would be bad for our democracy, our economy, and our society. Repealing the estate tax, a constructive part of our tax structure for 85 years, would leave an unfortunate legacy for America’s future generations.
“Only the richest 2 percent of our nation’s families currently pay any estate tax at all. Repealing the estate tax would enrich the heirs of America’s millionaires and billionaires while hurting families who struggle to make ends meet.
The billions of dollars in state and federal revenues lost will inevitably be made up either by increasing taxes on those less able to pay or by cutting Social Security, Medicare, environmental protection, and many other government programs so important to our nation’s continued well-being…”
The Responsible Wealth letter, which was released in May and widely circulated on Capitol Hill, did a lot to undermine the argument of Republicans like Gramm, who claimed that repeal of the estate tax was necessary for economic growth. That was critical because, with the Republican-controlled House solidly on board, it was hard work to prevent Senate Democrats in the Senate from embracing the Bush tax agenda. (Last year, 12 Democrats sided with Republicans to back a Bush tax cut plan and its temporary repeal of the estate tax.)
Responsible Wealth provided details on how permanent elimination of the tax would only serve the very richest Americans — not the family farmers and small-business owners often portrayed as the likely beneficiaries of this radical shift in tax policy. And Responsible Wealth bluntly reminded the constituents of members of wavering Congress what the elimination of the tax would mean: “If the estate tax is eliminated, someone else will pay. YOU,” read full-page newspaper advertisement placed by Responsible Wealth.
Did the aggressive campaigning by Responsible Wealth have an impact? Like the man bites dog story, the “news” that not all rich people favored cutting estate taxes played big. Media outlets from The New York Times to the Washington Post to Newsweek and Business Week covered the story of the billionaires revolt against tax cuts. Citing the Responsible Wealth letter, Business Week even editorialized against repeal, declaring that: “The founding fathers were right to worry about an aristocracy of wealth.”
Members of Congress took notice. When Gates, the father of Microsoft chairman Bill Gates and head the Gates family’s foundation, testified before the Senate Finance Committee in March, Republican Sen. Jon Kyl, R-Arizona, attacked the Responsible Wealth position. But a number of key senators embraced it as part of their own advocacy against the Bush administration’s tax agenda. U.S. Sen. Byron Dorgan, D-North Dakota, a sharp-tongued populist who led the fight against repeal of the estate tax, delighted in noting that even the Rockefellers said the shift would be bad for America.
And six Democratic senators who last year backed the Bush tax plan voted this week against Bush’s plan to permanently repeal the estate tax. Among the switchers were Louisiana’s John Breaux, California’s Dianne Feinstein, Wisconsin’s Herb Kohl, New Jersey’s Robert Torricelli, South Dakota’s Tim Johnson and Missouri’s Jean Carnahan. (Torricelli, Johnson and Carnahan are all up for reelection this year, and all have been pegged as vulnerable by political pundits.)
Those six anti-repeal votes mattered. The estate tax repeal needed the votes of 60 senators to be approved. It fell six votes short.
That’s a close margin. “We know the forces committed to repeal aren’t going to take our victory lying down,” says Responsible Wealth organizer Chuck Collins. “That’s why we are ready to advance our (own) reform agenda. In the coming months, we will work to advance proactive reform proposal and win co-sponsors in the House and Senate. We will wage a multi-year effort to win reform – with research, media, grassroots advocacy and popular education. This includes efforts to educate the public and key constituencies about the negative aspects of complete estate tax repeal.”
In addition to making “the moral case for preserving the estate tax,” Collins says, “Working with our coalition partners, we plan to change the terms of the debate on this issue.”
This week’s Senate victory over the Bush tax agenda offers powerful evidence that they have already begun to do just that.