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FRIST: DO AS I SAY, AND NOBODY GETS HURT

August 02, 2006

Senate Majority Leader Frist raised the stakes in his attempt to pass the estate tax reform yesterday, saying that neither the minimum wage nor the "extenders" will pass this year if they aren't passed with the current estate tax bill. Frist and House Republicans combined the three pieces of legislation last week in an attempt to get the 60 votes needed to get the estate tax cuts through the Senate.

The big question: is he bluffing?

With respect to the minimum wage, I think he's dead serious. Republicans don't want to pass a higher minimum wage, deep down; including it in the estate tax bill was a measure of how badly they want to pass the estate tax changes. In contrast, it's not clear the Democrats are eager for minimum wage legislation, as they like having it as a campaign issue, in spite of its doubtful economic logic.

As for the "extenders," I suspect it is a bluff. These provisions have been renewed regularly for one or two years at a time since the 1980s. They are only extended "temporarily" as a cynical budget gimmick. The "temporary" extension means their budgeted "cost" to the fisc is only counted for one or two years at a time, even though there is no intention to allow the research credit, to name one such provision, to lapse. These items continue to be punted down the road a year at a time, to be reenacted (often retroactively) and paid with some new loophole closer to be named later. If the estate tax doesn't pass, the extenders are likely to be enacted in a lame-duck season or retroactively by a new Senate.

Myself, I'd like the estate tax provisions passed (in spite of their failure to truly simplify the estate tax system) without either the minimum wage increase or the expiring provisions. The current estate tax structure is awful from a tax policy standpoint. The minimum wage hike just makes it harder for the unskilled to get that first job to start them up the ladder while giving a raise to middle-class kids working at the grocery store after school. Targeted tax breaks are economic snake-oil that clutter up the code on behalf of favored political donors and the tax professionals who help harvest the breaks; letting them lapse would help recover some of the revenue lost by the estate tax provisions. But then, I'm not up for re-election this fall.

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