A Half-true Attack on McCain

A Half-true Attack on McCain

The anti-tax Club for Growth runs an ad in New Hampshire claiming McCain would “keep the death tax.” Actually, McCain favors a big reduction.

Summary

The conservative anti-tax group Club for Growth targeted 2008 presidential hopeful Sen. John McCain with a TV ad in New Hampshire. It contains a half-true claim that McCain would "keep the death tax." In fact, McCain has long advocated reducing the number subject to the tax, so that it falls only on the estates of multi-millionaires.

The ad also misleads viewers by saying, "when you die, the IRS can tax you again. Taking as much as 55 percent of everything you've saved for your children." In fact, only estates exceeding $1.5 million currently pay any tax on that wealth. It fell on fewer than 1 percent of all Americans who died in 2004.

Analysis

Club for Growth (CFG) announced Aug. 29 that it was running a new round of ads supporting total repeal of the estate tax, including one aimed at Sen. John McCain, Republican of Arizona. The ad is airing in New Hampshire, where McCain could be running in the first presidential primary election of 2008.

--

Club for Growth Ad "McCain"

Announcer: You're born. You go to school. You work hard. You raise a family. You pay your taxes.

And when you die, the IRS can tax you again. Taking as much as 55 percent of everything you've saved for your children. It's called the death tax and it's wrong.

Senator John McCain wants to keep the death tax. Isn't a lifetime of taxes enough?

--

McCain: Target of Conservatives

The ad says, "Senator John McCain wants to keep the death tax," but that's misleading. In fact, McCain does not favor keeping the estate tax in its present form. He has long sought to narrow the tax to apply only to the estates of the wealthiest multi-millionaires. During his primary race against George W. Bush in 2000, McCain proposed excluding all estates under $5 million.


The Club for Growth made clear it hopes to damage McCain's presidential prospects. In its press release, the group's president Pat Toomey said, "we hope that politicians have finally learned the lesson that the Death Tax is both bad for the economy and bad for their careers."

It is true that McCain opposes permanent repeal of the estate tax, which under terms of the tax cuts enacted in Bush's first term expires for one year in 2010 and then returns the following year. Many conservatives are pushing to make repeal permanent, but a McCain spokeswoman confirmed that the senator stands in "opposition to full repeal of the estate tax" due to its "long-term fiscal implications." Immediate repeal of the estate tax in 2006 would cost the government almost $290 billion in tax revenue through 2015, according to the Joint Committee on Taxation.

But McCain's spokeswoman said he is currently backing efforts of bipartisan Senate negotiators to reach a compromise that would retain the estate tax in a much-reduced form. Sen. Jon Kyl, McCain's fellow Arizona Republican, plans to introduce an alternative proposal that would put the exemption level anywhere from $7 million to upwards of $10 million. Kyl has held talks with ranking Finance Committee Democrat Max Baucus, but no agreement has been reached on the exemption level or the tax rate. The Capitol Hill publication CongressDaily reported Aug. 16 that Kyl is "likely" to reduce the estate tax rate to 20 percent to match the capital-gains rate in 2010. The current top rate is 47 percent.

McCain's spokeswoman said he "remains confident" that Kyl and Baucus will strike a deal he can support. Regardless, McCain clearly supports repealing the tax for most Americans and would "keep" it only for the wealthiest multi-millionaires – a position distorted by the Club for Growth's ad.

A Wider Effort - Also Misleading

The misleading attack on McCain is part of a wider effort by the Club for Growth aimed at repealing the tax. The Senate is expected to take up the issue upon return from the August recess. Other Club for Growth ads targeted moderate Democratic senators viewed as swing votes. Repeal advocates need 60 votes to block a filibuster.

Club for Growth Ad, "Cantwell" Version

Announcer: You're born. You go to school. You work hard. You raise a family. You pay your taxes.

And when you die, the IRS can tax you again. Taking as much as 55 percent of everything you've saved for your children. It's called the death tax and it's wrong.

With her vote, Sen. Maria Cantwell can eliminate the death tax. Isn't a lifetime of taxes enough?
The latest targets include Baucus, the leading Democrat on the Finance Committee, as well as Sens. Maria Cantwell of Washington, Kent Conrad of North Dakota, and Ron Wyden of Oregon.

The ad creates the misleading impression that all those who see the ad will face a 55 percent tax their estates. As we've said before, "you" only pay if you have an estate worth over $1.5 million, under current law. So the ad is untrue for 99 percent of those viewing the ad – their estates would pay zero tax at the levels that apply this year. And as we've already noted, even the top rate is no longer 55 percent – it has come down to 47 percent this year and is scheduled to go to 45 percent in 2007. Under the Bush tax cut the top rate would come back to 55 percent in 2011 – after the one-year "repeal" in 2010.

Many affluent families escape the estate tax by making systematic gifts to their heirs before they die, and by using legal but expensive estate-planning maneuvers. But the fact is that those who actually pay are relatively few and wealthy. In 2003 2.4 million adults died, and just 28,600 left estates that were liable for any tax, according to the Tax Policy Center. So the tax fell on only the richest 1.2 percent that year. That was when the tax fell on estates of $1 million or more. For 2004 the threshold was increased to $1.5 million, so the tax currently falls on something below 1 percent of all estates, and would fall on even fewer under the $5-million threshold McCain proposed five years ago.

-- By Brooks Jackson and Jennifer L. Ernst

Sources

Joint Committee on Taxation, " Estimated Revenue effects of H.R. 8, 'The Death Tax Repeal Permanency Act 2005'" 13 April 2005.

Leonard Burman, William Gale, and Jeffrey Rohaly, " Options to Reform the Estate Tax," Urban-Brookings Tax Policy Center, Tax Policy Issues and Options No. 10, March 2005.

Martin Vaughan, "Kyl Mapping An Alternative Strategy For Estate Tax Measure," CongressDaily, 16 August 2005.