Here is Anthony Weiner, a Congressional black belt in cable news combat, making waves on Fox News yesterday. You don’t have to watch the whole thing. But note at about 1:25 when he says. “Is it best to add another $80 billion in debt to our children to pay for the Estate Tax burden that will only be lifted for 32,000 people in the entire country?”
It’s quite a stat. But it also is misleading. Weiner is comparing the compromise proposal, which sets rates at 35% with a $5 million exemption, with what is known as “current law,” the rates that will rule if Congress goes home today and does nothing: 55% with a $1 million exemption. But these are not the numbers that matters. Why?
Long before the current deal, President Obama signaled that he did not support setting the Estate Tax that high. In fact, Congress had already budgeted, in the PAYGO exemption, for an Estate Tax at the numbers that Obama, and many Democrats, do support: 45% and a $3.5 million exemption. So absent any phone calls between Joe Biden and Mitch McConnell, in a universe where Obama was king and not president, this was the rate that could be expected next year. What is the cost of lowering the rates from 45% to 35% and raising the exemption from $3.5 million to $5 million? Both the White House and Moody’s estimate it to be about $12 billion a year, or $24 billion over two years. Still a big number, but just a fraction as much as the number Weiner was using.
Working out the baselines is a huge problem in the debate over taxation. All sides tend to choose the baselines that best serve their case, confusing the discussion. You have probably heard that this whole package could cost as much as $800 or $900 billion, which is true, but only if you assume that Congress did absolutely nothing and all rates went up for everyone, an outcome no one in Congress supports. If you take out the consensus costs, like extending the Bush-era tax cuts for about 98 percent of Americans, then you get a cost to the McConnell-Obama deal that is closer to $400 or $500 billion. (Ezra Klein has posted a handy pie chart showing the share of the various provisions. See here.)
This same issue comes into play if you want to calculate your own personal tax from the tax cut compromise. (Because who doesn’t? Read on.) The Tax Policy Center, a nonpartisan, academic group, put forward estimates for the tax savings for the average family under the deal, but they calculated all of their numbers twice to show the effect on different baseline assumptions.
