Congress must reinstate the estate tax

When the clock struck a new year, one of our country's key tools for paying for important priorities like educating our children and protecting the environment went away.

The tool, the federal estate tax, not only raised billions of dollars, but it affected only a tiny number of the wealthy.

But at a time when we can least afford to lose billions, Congress let the estate tax lapse.

Congress may take up reinstating the tax in the next few weeks. But even then, some favor weakening it from last year's levels, which could cost us $150 billion in lost revenue over the next decade.

We can't afford that either.

Not when the recession is stretching state and federal budgets thin, causing cuts in important public investments.

As a business person, I want to see us make sound fiscal decisions that won't hurt our economic future, or have irrevocable impacts on our society.

In today's economic climate, it's difficult to justify cutting billions in taxes for those who are most able to pay.

To make matters worse, when Congress allowed the estate tax to disappear, it was accompanied by an increase in the capital-gains tax for thousands of more-modest estates.

Take an heir who wanted to sell shares of inherited stock for $100. If the shares were originally purchased for $10, under the previous estate tax, they would not have owed tax on the $90 difference in 2009. Since Jan. 1, someone inheriting an estate valued at more than $1.3 million would owe capital-gains tax on that gain.

Bottom line is more people are now facing higher taxes, just so a few of the wealthy can pay less.

It's curious that the estate tax is getting so much attention. It's been around since 1916. The tax rate was higher under presidents Reagan and Clinton. For generations, virtually no small business or family farm (those valued under $5 million) has ever been lost because of the tax.

Yet today, when the country is at war, unemployment is at painful levels and the economy is in a deep recession, some believe it's a good time to eliminate or significantly weaken a part of our tax system that has served this country well for nearly 100 years.

A reasonable approach is to extend the estate tax at the 2009 levels for one or two years.

The rhetoric of the estate tax's impacts — such as some mentioned in a recent Seattle Times editorial ["No to a 45-percent death tax"] — is exaggerated and irresponsible. The estate tax has been steadily lowered over the years and was already at historic lows. About 99.8 percent of all people will never have to worry about it.

The claim that the estate tax is adversely affecting small businesses and family farms is especially exaggerated. The nonpartisan Tax Policy Center estimates that only two small family farms in Washington would owe the estate tax in 2011 if 2009 rates were extended.

By eliminating the tax, we face some unpleasant trade-offs: One option is increasing taxes on the already strapped middle class; another is cutting vital investments like education and healthcare; or we could further burden our kids by irresponsibly adding billions to our federal deficit and debt.

When the estate tax was cut in 2001, we had a healthy federal surplus. And it was irresponsible then. Today we face record deficits and are in the midst of a crippling recession. Congress' failure to act was deeply irresponsible. Congress should move quickly to reinstate it.

Todd Achilles is now the managing member of Balius Ventures LLC, an investment and consulting firm focused on early stage companies in the wireless industry.