WASHINGTON -- Millionaires and billionaires would reap big rewards if President Obama's tax cut deal becomes law, but thanks to the agreement's estate-tax provisions it's their heirs who will make a real killing.
The Obama concession that's getting most of the attention in the media is the one that would extend the Bush income tax cuts even for households making over $250,000 a year. That's a gift to your average millionaire of $139,000 a year for the next two years.
But it's the estate tax cut which, despite its relatively lower public profile, has proven even harder for congressional Democrats to swallow. Obama's deal would free an estimated 40,000 of the biggest estates in the country each year that would otherwise have been subject to the tax from paying a single penny.
And the approximately 3,500 estates that would remain subject to the tax at all -- consisting of the top 0.14 percent of all U.S. estates each year -- would pay at a much lower rate.
Compared to current law, that would amount to a gift in 2011 averaging about $3.5 million for each of the thousand or so estates worth $20 million or more.
The total cost to the taxpayers would be about $23 billion a year.
Those estimates are based on an analysis by the Tax Policy Center, a Washington research group.
Estate tax rates have been all over the map in recent years. As one of George W. Bush's last gifts to the incredibly wealthy, the estate tax is actually zero in 2010, meaning even the estates of such billionaires as New York Yankees owner George Steinbrenner paid nothing. (Cost to U.S. taxpayers for Steinbrenner alone: Something like $500 million.)
Under the current law, however, the 2011 estate tax was set to return to the 2009 level of 55 percent for estates over $1 million. That's still considerably less than the 77 percent rate that applied from 1942 to 1976 on estates over $60,000.
Obama had previously proposed lowering the rate to 45 percent for estates over $3.5 million in 2011. The deal he struck with Republican Majority Leader Mitch McConnell, however, reduces the rate yet further, to 35 percent, and only for estates over $5 million. (All the minimums are for individual estates; the limits double for couples.)
The estate tax cut may end up being the biggest obstacle to winning Democratic support for the package. House Speaker Nancy Pelosi on Tuesday called the lower estate tax "a bridge too far." Rep. Chris Van Hollen, head of the Democratic Congressional Campaign Committee, told MSNBC on Wednesday: "This provision makes it "very, very difficult for me to support in its current form." The House Democratic caucus on Thursday non-bindingly rejected the overall deal, with the estate tax cut a key factor.
The estate tax is a particularly hot-button issue with progressives who see the increase of income inequality and loss of social mobility as being the main underlying problems with modern American society.
And the nation's more benevolent billionaires are not just vowing to give away at least half their fortunes, they're asking to have their estates taxed. (Among other things, high estate tax rates encourage charitable giving, which is of course tax free.)
Omaha investor Warren Buffett told the New York Times in 2001 that the estate tax plays a critical role in promoting economic growth by helping create a society in which success is based on merit rather than inheritance.
Repealing the estate tax, Buffett said at the time, ''would be a terrible mistake,'' the equivalent of ''choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics."
He continued: "Without the estate tax, you in effect will have an aristocracy of wealth, which means you pass down the ability to command the resources of the nation based on heredity rather than merit.''
Or, as Karen Dolan, a fellow at the Institute for Policy Studies, put it in her Huffington Post blog on Thursday: "Merry Christmas, Paris Hilton."
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Dan Froomkin is senior Washington correspondent for the Huffington Post. You can send him an e-mail, bookmark his page; subscribe to his RSS feed, follow him on Twitter, friend him on Facebook, and/or become a fan and get e-mail alerts when he writes.