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The Paris Hilton Fan Club

Commentary
August 20, 2005By Michael Leachman

Here’s an idea for running the economy: let’s all give tax breaks to super-rich heirs like Paris Hilton! Then, Paris and other lucky heirs and heiresses will spend our money in wise ways that the rest of us mopes never would have thought of, creating an economic boom and great jobs for everyone!

You think I’m joking? Some ideologues masquerading as representatives of the public in Washington, D.C. really think this is a good idea.

The proponents of this plan - the Paris Hilton Fan Club - want nothing more than to repeal or otherwise gut the estate tax. They have persistently launched Congressional assaults on the estate tax in six of the last seven years. And next month, when the U.S. Senate takes up the issue, they may finally get their wish.

Nearly everyone agrees that small businesses, farming families, and other normal, hard-working Americans should not pay the estate tax. And for the most part, they don’t.

The size of estates that are exempt from any taxation is increasing under changes Congress passed in 2001. As a result, next year estates worth up to $2 million a person ($4 million a married couple) will not pay an estate tax. By 2009, all estates worth up to $3.5 million a person ($7 million a married couple) will be exempt from estate taxes. At that point, 99.7 percent of all estates in the U.S. will pay nothing in estate taxes.

The U.S. Senate will decide next month what it thinks should happen in 2010 and in subsequent years.

First, they will vote to permanently repeal the estate tax. Knowing that this fiscally irresponsible move will likely fail, the Paris Hilton Fan Club is then going to push a proposal by Senator Kyl of Arizona that would essentially eliminate the estate tax for Paris and other privileged heirs and heiresses by cutting the tax rate on the estates that will still be subject to the tax.

Here’s the thing to remember about the rate: it only applies to that part of the estate that is subject to taxation. Under Kyl’s proposal, heirs would first subtract $3.5 million, or $7 million per couple (and will be able to subtract more over time as it is indexed to inflation) plus other deductions, and then apply Kyl’s low rate.

To add insult to injury, Kyl wants to tie his low estate tax rate to another provision of the tax code - the capital gains tax - that he and others want to eliminate over time. Thus, under the Kyl scheme, the estate tax falls to next to nothing, and then disappears entirely if the capital gains tax is eliminated. The Kyl scheme is tantamount to repeal.

Repealing the estate tax, as the U.S. House wants to do, would cost nearly $1 trillion over the first ten years of implementation at a time when the government is already running massive long-term deficits. The one-year cost for repeal of the estate tax is more than our government invests in worthy endeavors such as homeland security, K-12 education, student aid, or veteran’s medical care.

Someone will have to pay the bill for the estate tax’s repeal or near-repeal. That means taxes will go up for the rest of us, or important social investments such as homeland security or education will be cut, or our children will pay through an even bigger deficit.

The Paris Hilton Fan Club thinks that massive amounts of inherited income ought to be tax-free while workers continue to pay income and payroll taxes on their wages. They want Paris to have more money to invest in creating great jobs for everyone. They also want her to be able pass on more money to her children, assuring that Hiltons in skimpy skirts will live well, well into the future when our children are still digging their way out of the country’s debt.