Unequal Democracy: The Political Economy of the New Gilded Age

for MANY LIBERALS, the most egregious feature of the Bush tax cuts was the gradual phaseout and temporary repeal of the federal estate tax. The fiscal impact of the estate tax phase-out is relatively modest in the overall scheme of the Bush tax cuts; the Joint Committee on Taxation has estimated that it will cost the federal government $186 billion through 2011, less than 15% of the total cost of the 2001 EGTRRA legislation alone. However, the fight over estate tax repeal seems uniquely symbolic of the skewed class politics of the New Gilded Age. Eliminating what one prominent economist has called “the closest thing to a perfect tax we have”¹ in order to protect the inherited wealth of multimillionaires seems perversely contrary to the interests of the 98% of American families whose estates will never reach the threshold for taxation. How could a democratic political system arrive at such a policy?

In 2002 the estate tax was only assessed on estates worth $1 million or more, and many of those were exempted. Under the provisions of the 2001 EGTRRA tax cut, the estate tax threshold gradually increased to $3.5 million in 2009, while the tax rate gradually declined. The estate tax will be totally repealed in 2010; however, as with other elements of the 2001 tax cut, it will be reinstated in its pre-2002 form in 2011—absent further action by Congress.

Paul Krugman mocked the apparent illogic of this off-again, on-again scheme: “If your ailing mother passes away on Dec. 30, 2010, you inherit her estate tax-free. But if she makes it to Jan. 1, 2011, half the estate will be taxed away. That creates some interesting incentives. Maybe they should have called it the Throw Momma From the Train Act of 2001.”² Whether wealthy ailing mothers will, in fact, be put at risk remains to be seen. Legislation providing for permanent repeal of the estate tax has cleared the House of Representatives on more than one occasion, only to fall short of garnering the 60 votes necessary to overcome a Democratic filibuster in the Senate.

But why is Congress even considering estate tax repeal? In their comprehensive account of the repeal effort, Michael Graetz and Ian Shapiro portrayed the threat to the estate tax as a “political mystery”:

¹ Robert H. Frank, “The Estate Tax: Efficient, Fair and Misunderstood.” New York Times,
May 12, 2005.

² Paul Krugman, “Bad Heir Day,” New York Times, May 30, 2001.

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