Hillay Clinton Calls for Estate Tax Increase

As part of her campaign, Democratic candidate for president Hillary Clinton has called for increasing the estate tax rate and the number of estates the tax would apply to. Specifically, her proposal calls for reducing the individual estate and gift tax exemption from its current level of $5.45 million to $3.5 million, and raising the estate tax rate from 40% to 45%.

President Obama has supported similar tax increases, but a Republican Congress has not enacted them.

Some estate planning techniques that critics term loopholes would remain under her plan, including some she and Bill Clinton have used themselves.

CEOs rank California 51st for Business Environment

More than 600 CEOs rated states on a wide range of criteria from taxation and regulation to workforce quality and living environment, in our sixth annual special report.

In Chief Executive’s annual survey of best and worst states for business, conducted in late January of this year, 651 CEOs across the U.S. again gave Texas top honors, closely followed by North Carolina, Tennessee and Virginia. They gave the booby prize for worst state to California, with New York, Michigan, New Jersey and Massachusetts filling out the bottom five-a line-up virtually unchanged from last year. Florida and Georgia each dropped three places in the ranking, but remain in the top 10. Utah jumped six positions this year to sneak into the top 10 at No. 9.

The business leaders were asked to draw upon their direct experience to rate each state in three general categories: taxation and regulation, quality of workforce and living environment.

Best and Worst States for Business 2010, chiefexecutive.net, 29 April 2010

See also Of 50 States, California ranks 51st, Orange County Register editorial, 5 May 2010:

As the magazine noted, Californians pay among the nation's highest income and sales taxes. Unemployment exceeds the national average, and, contrary to the national trend, "union density is climbing, from 16.1 percent of workers in 1998 to 17.8 percent in 2002."

Indeed, according to the magazine's critique, "organized labor has more political influence in California than in most other states." The magazine zeroes in on perhaps the crux of the problem: "When state employees reach critical mass, they tend to become a permanent lobby for continual growth in government."

That helps to explain why unfunded pension and health care promises for state workers "top $500 billion, and the annual pension contribution has climbed from $320 million to $7.3 billion in less than a decade," as the magazine noted.

It doesn't take a national survey to reveal California's failing business climate. Seven California metro areas were among the 15 national leaders in commercial bankruptcy filings in 2009, according to Equifax Inc. Not coincidentally, California had twice as many personal bankruptcies as any other state in 2009 when it ranked 11th in bankruptcies per capita.

It also doesn't take a CEO to notice the differences between California and top-rated Texas. Texas, with nearly as many residents and the world's 12th largest economy, "is where 70 percent of all new U.S. jobs have been created since 2008," the magazine reported. Also unsurprisingly, Texas gained more than 848,000 net residents based on migration in and out of the state in the past decade, while California lost 1.5 million, according to the Census.

"You feel like [Texas] state government understands the value of business and industry to create jobs and growth," one CEO said in the magazine.

Hillary Clinton, Democrat for President, on the Estate Tax

In the first in a series, California Business Law Blog examines the Republican and Democrat presidential candidates' stance on the estate tax, sometimes also know as the death tax or ibheritance tax. First up, Senator Hillary Clinton (Democrat - New York):

Her current presidential platform proposal, which is to some extent inconsistent with her prior voting record, as can be seen below, is to freeze the federal estate tax at 2009 levels, that is, a $3.5 million exemption (she describes this as a $7 million exemption, presumably meaning, for a married couple, the combined total of $7 million in exemptions, which requires proper estate planning to take advantage of). As a result of the "Bush tax cut", the estate tax has been trending downward each year and is currently slated to be completely elminated in 2010 (unlimited exemption amount, 0% tax rate, leading to numerous estate planning jokes centering around solving estate tax problems by planning to die in 2010). However, due to a legislative compromise and other technicalities, it is also scheduled to jump back to tge old, higher tax levels commencing 2011 (only $1 million exemption, 55% tax rate on the balance). It is unlikely give the current political climate that the currently-scheduled death tax rates for 2011 will be allowed to stand unchanged.

For reference purposes, as this is written, in 2007, the exemption amount is $2 million, and the estate tax rate is 45%.

Recently, on the campaign trail in Derry, New Hampshire, Clinton --

answered questions from voters at a town hall at the opera house here, which was her second stop on a two-day swing through the state.

The first question from the audience after Clinton's speech came from a woman who challenged her plan to pay for universal retirement accounts by freezing the estate tax at 2009 levels. The woman said the money from inheritance had already been taxed when it was earned and she felt taxing it again was the wrong way to fund Clinton's plan.

"People disagree about this, but the estate tax, which came into being by Republicans like Teddy Roosevelt and others, and has been part of our tax system for a very long time is there for a real simple reason: In America, we've never liked the idea of massive inherited wealth," Clinton replied. "Part of the reason why America has always remained a meritocracy where you have to work for what you get, where you have to get out there, make your case to people, come up with a good idea, is that we never had a class of people sitting on generation after generation after generation of huge inherited wealth."

Clinton said people like Bill Gates and Warren Buffet were against doing away with the estate tax, because they made it on their own. She went on to explain, to applause, that a married couple could have an estate worth up to $7 million before getting taxed, and said she considered that a "pretty healthy estate to leave to your children."

Source: MSNBC.com: Clinton Questioned on Estate Tax, October 10, 2007

Critics of Clinton's, Gates', and Buffet's argument - not present to state their arguments in New Hampshire - point out that these men are so wealthy that they do not represent the typical high net worth family that is often attempting to pass a family business or farm along to the next generation, and are millionaries, not billionaires. Gates and Buffet deal in publicly traded companies, and cannot pass along Microsoft or Berkshire Hathaway, each worth billions beyond the personal wealth of either businessman and each owned by thousands of investors, to their children.

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As a Senator, she has had the opportunity to vote on the issue serveral times:

Voted NO on raising estate tax exemption to $5 million.

An amendment to raise the death tax exemption to $5 million; reducing the maximum death tax rate to 35%; and to promote economic growth by extending the lower tax rates on dividends and capital gains.

(Proponents recommend voting YES because:

It is disappointing to many family businesses and farm owners to set the death tax rate at what I believe is a confiscatory 45% and set the exemption at only $3.5 million, which most of us believe is too low. This leaves more than 22,000 families subject to the estate tax each year.

Opponents recommend voting NO because:

You can extend all the tax breaks that have been described in this amendment if you pay for them. The problem with the amendment is that over $70 billion is not paid for. It goes on the deficit, which will drive the budget right out of balance. We will be going right back into the deficit ditch. Let us resist this amendment. People could support it if it was paid for, but it is not. However well intended the amendment is, it spends $72.5 billion with no offset. This amendment blows the budget. This amendment takes us from a balance in 2012 right back into deficit. My colleagues can extend those tax cuts if they pay for them, if they offset them. This amendment does not pay for them; it does not offset them; it takes us back into deficit. It ought to be defeated.

Reference: Kyl Amendment; Bill S.Amdt.507 on S.Con.Res.21 ; vote number 2007-083 on Mar 21, 2007);

Voted NO on supporting permanence of estate tax cuts.

Increases the estate tax exclusion to $5,000,000, effective 2015, and repeals the sunset provision for the estate and generation-skipping taxes. Lowers the estate tax rate to equal the current long-term capital gains tax rate (i.e., 15% through 2010) for taxable estates up to $25 million. Repeals after 2009 the estate tax deduction paid to states.

(Proponents recommend voting YES because:

The permanent solution to the death tax challenge that we have today is a compromise. It is a compromise that prevents the death rate from escalating to 55% and the exclusion dropping to $1 million in 2011. It also includes a minimum wage increase, 40% over the next 3 years. Voting YES is a vote for that permanent death tax relief. Voting YES is for that extension of tax relief. Voting YES is for that 40% minimum wage increase. This gives us the opportunity to address an issue that will affect the typical American family, farmers, & small business owners.

Opponents recommend voting NO because:

Family businesses and family farms should not be broken up to pay taxes. With the booming economy of the 1990s, many more Americans joined the ranks of those who could face estate taxes. Raising the exemption level and lowering the rate in past legislation made sense. Under current law, in my State of Delaware, fewer than 50 families will face any estate tax in 2009. I oppose this legislation's complete repeal of the estate tax because it will cost us $750 billion. Given the world we live in today, with clear domestic needs unmet, full repeal is a luxury that we cannot afford.

To add insult to this injury, the first pay raise for minimum wage workers in 10 years is now hostage to this estate tax cut. We are told that to get those folks on minimum wage a raise, we have to go into debt, so that the sons and daughters of the 7,000 most fortunate families among us will be spared the estate tax. We must say no to this transparent gimmick.

Reference: Estate Tax and Extension of Tax Relief Act; Bill H.R. 5970 ; vote number 2006-229 on Aug 3, 2006);

Voted NO on permanently repealing the "death tax".

A cloture motion ends debate and forces a vote on the issue. In this case, voting YES implies support for permanently repealing the death tax. Voting against cloture would allow further amendments. A cloture motion requires a 3/5th majority to pass. This cloture motion failed, and there was therefore no vote on repealing the death tax.

(Proponents of the motion say:
We already pay enough taxes over our lifetimes We are taxed from that first cup of coffee in the morning to the time we flip off the lights at bedtime. If you are an enterprising entrepreneur who has worked hard to grow a family business or to keep and maintain that family farm, your spouse and children can expect to hear the knock of the tax man right after the Grim Reaper.
In the past, when Congress enacted a death tax, it was at an extraordinary time of war, and the purpose was to raise temporary funds. But after the war was over the death tax was repealed. But that changed in the last century. The death tax was imposed and has never been lifted.
The death tax tells people it is better to consume today than to invest for the future. That doesn't make sense.

Opponents of the motion say:

Small businesses and farms rarely--if ever--are forced to sell off assets or close up shop to pay the tax. Under the current exemption, roughly 99% of estates owe nothing in estate taxes. By 2011, with a $3.5 million exemption, only two of every 100,000 people who die that year would be subject to the estate tax.
Today's vote is on a motion to proceed to a bill to repeal the estate tax. Not to proceed to a compromise or any other deal--but to full repeal. I oppose full repeal of the estate tax. Our Nation can no longer afford this tax break for the very well off. Permanently repealing the estate tax would add about $1 trillion to our national debt from 2011 to 2021.

Reference: Death Tax Repeal Permanency Act; Bill HR 8 ; vote number 2006-164 on Jun 8, 2006).

Source: On the Issues: Hillary Clinton on Tax Reform

The conservative Club for Growth, which favor repeal of the estate tax, rated Clinton's voting record 8 out of 100 for 2006 for pro-growth economic policies.

See also:

John McCain, Republican for President, on the Estate Tax
Barack Obama, Democrat for President, on the Estate Tax
Hillary Clinton Offical Site: Economic Blueprint

June 2008 update: Hillary Clinton ended her 2008 bid for the White House on June 7, 2008, leaving Barack Obama as the presumptive Democrat nominee.