Obama ‘deal’ a death knell for death tax?

Republicans had much to cheer about last week, including the significant advance they made in their longstanding battle to do away with estate taxes for the ultrawealthy. Lost amid the din of popping Champagne corks and political chest-thumping over President Barack Obama’s “deal” with Republican lawmakers was the short-term reinstatement of the estate tax at 35% with a $5 million exemption.

After it expired in 2010, the estate tax was slated to jump to 55% with a $1 million exemption, or $2 million for couples, Jan. 1. Under the terms of last week’s agreement, however, the estate tax would be set at 35% for two years and apply to estates worth more than $5 million, or $10 million for couples.

The compromise on the estate tax was part of a much broader tax package agreed on last Monday by Mr. Obama and Republican leaders in Congress. That agreement — which Congress still needs to pass amid the grumbling of Democrats — would also extend Bush-era tax cuts for two years, lower worker payroll taxes for one year and give more-favorable tax treatment to business investments.

There are many laudable aspects to the deal — not the least of which is the extension through 2011 of unemployment benefits to millions of Americans, which the Republicans had promised to block if they didn’t get their way on the tax cuts.

In addition, the deal may help stimulate the economy, a point that did not go unnoticed by investors, whose enthusiasm for the tax cut extension helped push the S&P 500 to a two-year intraday high last Tuesday. Mark Zandi, chief economist of Moody’s Analytics and a former adviser to Sen. John McCain, R-Ariz., last week upped his gross-domestic-product growth predictions to 4% in 2011, from 2.7% before the compromise was struck.

Even so, one cannot help but wonder whether Mr. Obama — in his zeal to placate Republicans and solidify his standing as a leader capable of compromise — may have set the stage inadvertently for what many Republican lawmakers have wanted all along: the permanent repeal of the estate tax.

After all, by agreeing to put the estate tax issue on hold until 2012 — a presidential election year — hasn’t Mr. Obama paved the way for even more political “hostage taking” then? And hasn’t his capitulation emboldened Republicans to try to push the tax back even further?

Make no doubt about it: Politicians will continue to look for opportunities to give their ultrawealthy patrons a pass on taxation of accumulated wealth.

A more reasonable concession on Mr. Obama’s part would have been to make the estate tax permanent at the 2009 level, setting the top rate at 45% with a $3.5 million exemption and $7 million for couples. At those levels, only the wealthiest estates — one in every 400 — would be subject to any estate tax, according to the Center on Budget and Policy Priorities, a Washington think tank.

Despite the small number of estates affected, the estate tax must not be weakened further, never mind repealed.

Repeal of the estate tax simply would add to the burden of the shrinking middle class, and its children and grandchildren, while easing the burden on multimillionaires and billionaires, and their heirs.

Relative to resetting the estate tax to its 2009 form, as Mr. Obama had once hoped for, repeal of the estate tax would increase the deficit by $798 billion between 2012 and 2021, decreasing federal revenue by $630 billion and increasing payments on national debt by $168 billion, according to an analysis by the Center on Budget and Policy Priorities.

Right now, that revenue is needed to pay for wars, retirement, health care and the reduction of the burden all our heirs face: government deficits created in part by irresponsible tax cutting.

While some liberal lawmakers are understandably incensed by Mr. Obama’s last-minute concession to Republicans on the estate tax, now is not the time to revolt by blocking the legislation. It is our view that Democrats should get behind the deal — if for no other reason than it will result in the extension of unemployment insurance for millions of Americans who need the money for survival.

The agreement also will benefit many middle-class workers through a 2% payroll tax cut and college tuition credits.

Any attempt by Democrats to block it will be perceived justifiably as cynical and scornful. More importantly, the deal’s defeat would deprive the middle class and unemployed of its benefits.