The estate tax, one of the most progressive tax policies in America, only currently affects the wealthiest 2 percent of Americans. Yet contrary to personal self interest, many members of Congress are not basing their position on the issue on their own pocketbooks. In his recent article in Tax Notes, Martin Sullivan made the ironic observation that on average, the more wealthy members of Congress, many of whom would be substantially taxed under the estate tax, are fighting the Bush administration’s attempts at repeal.

Sullivan made the point that, “when it comes to fighting class warfare in Congress, the rich are for the poor and the poor are for the rich.” Under the current law, which was set forth in the 2001 Economic Growth and Tax Relief Reconciliation Act (EGTRRA), the estate tax is phasing out gradually through 2009. In 2009, the top estate tax rate is 45 percent for all estates. In 2010 the tax will be repealed altogether, but then in 2011, the law reverts back to that which was in place prior to the passage of EGTRRA. That means that after 2010, estates greater than $1 million will be taxed at a gradual rate from 18 percent to 55 percent, with an additional 5 percent tax on amounts above $10 million (but not exceeding $17.184 million). This odd development has inspired some critics to observe, jokingly, that it provides an incentive for heirs to hasten the demise of their benefactors.

The estate tax is not only an important source of federal revenue — repeal would cost the government $80 billion per year — but it is also important because of its progressive structure, as well as the incentive it creates for charitable giving. Unfortunately, the estate tax has been mischaracterized as a tax that hurts small businesses and family farmers. In reality it affects a very small number of businesses and family farms. Even so, there is a very real risk that this Congress will either vote to accelerate repeal, or to make the repeal permanent after 2010.

However, the wealthiest members of Congress, those who would get hit the hardest by the estate tax, overwhelmingly support it, and advocate reform of the policy as opposed to repeal. Different reform proposals could involve raising exemption levels, to lowering the rate at which estates are taxed, to exempting family farms and small businesses altogether. Reform, as opposed to repeal, would be much less detrimental to federal revenue levels.

Sullivan’s research found the five wealthiest Senators — John Kerry (D-MA), Jon Corzine (D-NJ), Herb Kohl (D-WI), John Rockefeller (D-WV), and Lincoln Chafee (R-RI) — voted against repeal, and eight of the ten wealthiest Senators are also against repeal. Chafee and John McCain (R-AZ), who are the wealthiest Republican Senators, have both broken with their parties in the past to vote against repeal. McCain’s assets, which are recorded as equaling roughly $11.4 million, would be taxed $3.9 million if he passed away in 2005. John Kerry’s, whose wealth is estimated to be around $1 billion, would be taxed so that $468.6 million would go towards federal revenue if he passed away in 2005. These wealthy Senators recognize how important the estate tax is, as they continue to support a tax policy taxing their personal assets at a high rate.

Repeal of the estate tax would in fact be extremely detrimental. In an economy plagued by both record high federal budget deficits and spending, coupled with an administration that wants to make existing and costly tax cuts permanent, the loss of this revenue would only further destabilize the economy, and amplify the consequences of a higher deficit, a weaker dollar, and deeper cuts in discretionary spending.