How the Debt Ceiling Debate Impacts the Estate Tax

The estate tax is quietly under siege in the debt ceiling debate. Since the debt ceiling is the total amount of money that the government is allowed to borrow, you might wonder, what does that have to do with the estate tax?

Put simply, it's a matter of cash flow. If we fail to raise the debt ceiling, the government will default on its obligations for the first time in U.S. history. As of August 2, 2011, we will no longer be able to borrow money to finance existing commitments, such as military salaries and Medicare benefits. Historically, Congress has always raised the debt ceiling when needed without batting an eye. But today, the issue is stuck in a quagmire of political bargaining and conservative catch-phrasing, such as “tax breaks” and “spending cuts.” These so-called “tax breaks” are directed at the wealthy, of course, and often in the form of eliminating the estate tax.

Indeed, Republican politicians are making tough demands in debt ceiling negotiations (perhaps it’s a last-ditch effort to strengthen future candidacies). Many are refusing to pass an increase in the debt ceiling unless there is an agreement to slash federal spending. They claim that the solution to current budget woes comes from spending cuts alone. But how can we expect to improve our financial situation without increased revenue flows? One key source of revenue is a stronger estate tax, which has garnered fierce conservative opposition.

Although we don’t know exactly what the Republican debt-ceiling proposals entail, recent Republican legislation gives us a pretty clear picture of their intentions. One budget plan (that was later rejected) proposed a complete elimination of the estate tax and corporate income tax. Another amendment (to a bill ending ethanol tax credits, no less) would have completely removed the estate tax. In a time of debt, we cannot afford to lose valuable tax revenue from the nation’s wealthiest. 

Last week, House majority leader Eric Cantor (R-VA) walked out of bipartisan budget talks led by Vice President Joe Biden because of the stalemate on tax increases and spending cuts between Democrats and Republicans. But how much of a threat do the Republicans actually pose to increasing the debt ceiling?

Vocal support for an increase comes from the International Monetary Fund, which has urged Congress to raise the U.S. debt ceiling to avoid a financial meltdown with international implications, as well as from Chairman of the Federal Reserve Ben Bernanke.

And don’t forget one of the most powerful lobby groups on the Hill: Wall Street. Failure to increase the debt ceiling would greatly harm the U.S. financial system and perhaps lead to the demise of major U.S. banks. Wall Street executives have no intention of letting Republican politicians endanger the international power of the U.S. financial system (or their hefty bonuses).

So, even if the estate tax isn’t in the headlines, it is important to remember that the estate tax is under attack today. Call your congressman and urge him or her to vote for an increase in the debt ceiling without giving into unreasonable Republican demands. We simply cannot afford to eliminate the estate tax.



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