The Obama-GOP compromise "raises taxes, it raises the death tax."
The compromise agreement on taxes proposed by President Barack Obama -- after negotiating with Republican leaders -- has critics on both ends of the political spectrum. The plan would extend all Bush-era income tax cuts for two years and extend unemployment benefits for another 13 months. Some Democrats have criticized Obama for caving on tax cuts to the wealthy, while some Republicans have complained that the tax cuts were not made permanent. Other Republicans have criticized the lengthy extension of unemployment benefits. On Dec. 7, 2010, Sen. Jim DeMint, R-S.C., voiced his opposition to the compromise bill on Hugh Hewitt's nationally syndicated radio show, and the plan's proposal for the estate tax was one of his biggest gripes. "Most of us who ran this election said we were not going to vote for anything that increased the deficit," DeMint said. "This does. It raises taxes, it raises the death tax. I don’t think we needed to negotiate that aspect of this thing away." DeMint's quote was later widely discussed by political pundits such as Keith Olbermann and Sean Hannity. While most of the national debate has focused on the payroll tax provisions, the compromise plan also sets new policy on the estate tax (often called the "death tax" by opponents like DeMint). Specifically, the plan would impose a 35 percent estate tax rate, with an effective exemption of $5 million. DeMint's comment that the compromise "raises the death tax" might seem like a pretty straightforward claim. It either does or it doesn't, right? It all depends on what you use as the baseline. This year, there was no estate tax. But 2010 was an anomaly. In 2009, the rate was 45 percent on the value of estates over $3.5 million. In the years prior to that, the rate was even higher. And barring new legislation, the rate was set to revert back to 55 percent on the value of estates greater than $1 million in 2011. A little history on the estate tax puts things into better perspective. First enacted in 1916, the estate tax rates and thresholds have fluctuated over the years. In 2001, President George W. Bush signed a plan to gradually reduce the estate tax from 55 percent to 45 percent, while at the same increasing the exemption value from $1 million in 2002 to $3.5 million in 2009. In 2010, the Bush plan had the estate tax disappear completely. That allowed more than five billionaires this year to pass their fortunes on to heirs tax-free. The most famous beneficiary was the estate of New York Yankees owner George Steinbrenner, who died in July. Also benefiting was the estate of Texas pipeline tycoon Dan L. Duncan, who died in March and was worth an estimated $9 billion. The Bush plan had a 10-year window, though, because Republicans didn't have the votes at the time to permanently abolish the estate tax. It passed the Senate under budget reconciliation, which requires only a simple majority of 51 votes but which also limited it to a 10-year shelf life. So the plan reached the Republicans' ultimate goal of getting rid of the estate tax -- but only in its last year. At the time, Republicans hoped that in ensuing years they would get enough votes to do away with the estate tax permanently. In fact, they tried in 2005, but failed. Last year, Democrats controlling Congress tried to make the 2009 estate tax rates (45 percent on the value of estates over $3.5 million) permanent. But the plan never reached a vote in the Senate. Again, the compromise proposed by Obama last week would set the rate at 35 percent on the value of estates over $5 million. Is that an increase in the estate tax? "It depends on what you're comparing against," said Bob Williams of the nonpartisan Tax Policy Center. If you are comparing it to the rate this year, then yes, it would be a tax increase. But if you compare it to where the rate was set to go next year, it's actually a tax cut. "Given that there was never any law passed to permanently make the tax disappear entirely," Williams said, "it's hard to argue that it's a tax increase relative to what otherwise would have happened." People often weigh a tax change relative to today's reality. So in that sense, it could be considered a tax increase compared to the anomaly of 2010. But the compromise tax plan is actually considered by many a win for Republicans, because the estate tax would have automatically jumped much higher -- to 55 percent on the value of estates over $1 million -- if no deal were reached. And it's less than the 45 percent rate on the value of estates over $3.5 million in effect in 2009 and which House Democrats proposed to make permanent last year. So we rate DeMint's claim Barely True. Editor's note: This statement was rated Barely True when it was published. On July 27, 2011, we changed the name for the rating to Mostly False.
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