The Estate Tax and Political Blackmail

The Progress Report. Posted August 3, 2006.

On Friday, the Senate will vote on a bill that increases the minimum wage for the first time in nine years. Conservatives "who never voted for the minimum wage before, you'll see them vote for this," explained Sen. Jim DeMint (R-SC). Why? Because the minimum wage increase -- which is at its lowest buying power in 51 years -- is being coupled with an unnecessary and costly reduction in the estate tax for the super-wealthy, a windfall for a small number of powerful legions in the conservative base.

The Senate leadership, demonstrating that it cannot act on behalf of low-wage workers without bribing the rich, has said it will prevent any attempts to strip the estate tax provision from the bill and allow a straightforward vote on the minimum wage increase. In a moment of candor last week, Rep. Zach Wamp (R-TN) revealed the political motives behind the bill, informing proponents of the minimum wage increase that "you have seen us really outfox you on this issue tonight."

Editorials across the nation, however, have taken note, decrying the pairing of the minimum wage with the estate tax as a "cynical move," a "political ploy," and a "minimum wage, maximum gall" effort that "screams of unfairness, hypocrisy and economic disaster."Sen. Edward Kennedy (D-MA) added, "It's political blackmail to say the only way that minimum wage workers can get a raise is to give a tax giveaway to the wealthiest Americans. Members of Congress raised their own pay -- no strings attached. Surely, common decency suggests that minimum wage workers deserve the same respect."

Why the Paris Hilton Tax Cut should be a deal-breaker

The estate tax reduction -- aka the "Paris Hilton tax cut" -- would exempt the first $10 million of a couple's estate ($5 million for an individual) from taxation entirely by 2015. Amounts above this and up to $25 million would be taxed at the capital gains rate, while amounts above $25 million would be taxed at 30 percent. Wealthy heirs who stand to receive a $10 million inheritance would receive a tax break of as much as $2.76 million. Center for American Progress Director of Tax and Budget Policy John Irons explains that the "the heirs of the $10 million estate would get a tax break worth as much as 183 years of the income of a full-time minimum wage earner."

The Center on Budget and Policy Priorities (CBPP) reports that while 6.6 million minimum wage earners nationwide stand to gain an average benefit of $1,200 if the increase passes, a small number of ultra-wealthy beneficiaries (8,200 individuals) stand to reap an average of $1.3 million. CBPP also concluded that the estate tax provision would cut government income by $753 billion in the first 10 years, forcing lower spending for Medicaid, food stamps and unemployment insurance, which help low-wage workers. (By comparison, the White House estimates the federal deficit for this year will be $296 billion.)

Over a million low-wage workers would get a wage cut

While the proposed minimum wage-estate tax cut bill raises the wage for most employees, it results in a wage cut for approximately 1.1 million workers. The Economic Policy Institute (EPI) explains that the proposed bill would strike down state laws that require employers to "pay a full minimum wage without relying on tips from customers to reach the minimum level." Currently, seven states -- Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington -- mandate that their employers pay the applicable minimum wage without factoring in tips.

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