Krauthammer falsely claimed estate tax "penalizes a lot of small businesses"August 1, 2006 1:29 PM EDT ››› RAPHAEL SCHWEBER-KOREN
On the July 28 edition of Fox News' Special Report with Brit Hume, Washington Post columnist Charles Krauthammer falsely claimed that the estate tax "penalizes a lot of small businesses" and could leave the "heirs" of a "small-business owner" with "nothing." In fact, the estate tax affects very few small-business owners, and the highest marginal estate-tax rate is 46 percent. Krauthammer also claimed that an increase in the minimum wage "will always destroy jobs." However, as Media Matters for America has noted, research has shown that increasing the minimum wage does not result in job loss or negatively affect employment.
Krauthammer misstated the impact of the estate tax and a minimum-wage increase in order to justify what he described as a "reasonable compromise" reached by House Republicans, who paired a minimum-wage increase and estate-tax cut in a single bill. According to Krauthammer, linking the two measures "says to a small-business owner, 'Yes, you're going to be hurt if the minimum wage is raised, but we're going to try to help you on the back end when you die, so your heirs are at least going to have something to inherit and not nothing.' "
However, several studies have shown that the estate tax affects a very low number of small-business owners. As Media Matters has noted, a March 2005 report by the Brookings Institution's Tax Policy Center found that of all the estates affected by the tax in 2004, only 440 (roughly 2 percent) were "primarily made up of farm and business assets," whether large or small. The Tax Policy Center report also noted that revenue from these 440 farms and businesses constituted only 5.6 percent of total estate-tax revenue collected in 2004. "Small" farms and businesses -- "defined as those valued at less than $5 million" -- constituted less than 1 percent of total estate-tax liability in 2004. Moreover, as noted by the nonpartisan Center for Budget and Policy Priorities (CBPP), a July 2005 Congressional Budget Office report found that based on an analysis of 1999 and 2000 estate-tax returns, only 135 family-owned businesses would have owed any estate tax at the current exemption level of $2 million. By contrast, about 4.5 million active businesses with assets under $5 million filed income-tax returns in 2002, according to the IRS.
Furthermore, contrary to Krauthammer's suggestion that the estate tax might leave an heir with "nothing," the marginal estate-tax rate in 2006 is 46 percent, and according to CBPP, the effective estate-tax rate under 2006 law -- the percentage estates owe after deductions and exemptions -- is 19 percent for the average estate that actually owes any estate tax.
Several studies also contradict Krauthammer's claim that a minimum-wage increase "will always destroy jobs." As Media Matters has noted, a 1998 Economic Policy Institute (EPI) study of the impact of the two most recent increases in the federal minimum wage found that the effect on employment was "economically small and statistically insignificant ... [and] almost as likely to be positive as negative." Additionally, as the weblog Think Progress noted in a July 24 entry, a 1995 study by Princeton University economists David Card and Alan B. Krueger found that increases in state and federal minimum wages led "to increases in pay, but no loss in jobs." Think Progress also noted that a report from the Wisconsin Department of Workforce Development found that the state's 2005 minimum-wage increase "produced $175 million in additional payroll and a $3 million boost in state tax revenue."
From the July 28 edition of Fox News' Special Report with Brit Hume, with Roll Call executive editor Morton M. Kondracke, Weekly Standard executive editor Fred Barnes, and guest host Brian Wilson:
KONDRACKE: Look, we've got full employment, right? And it's not as though workers are going to get fired if they're paid more.
BARNES: Yes, they are.
KONDRACKE: Oh no, they're not. Fred -- all right, better go out and look for illegal aliens, then, and pay them under the table. Look, this minimum wage has not been raised for almost 10 years. CEO pay at the biggest hundred corporations goes up 25 percent a year. And you know, it is -- and they -- what the Republicans are trying to do is cover themselves, here. They're trying to -- the House Republicans want to go home and say, "We voted for the minimum wage," knowing full well that it's tied to this estate tax, which is an obscenity unto itself, elimination. That's for the very highest, richest, fattest cats in the world, and they know that that won't pass the Senate, so it's a fraud. It's a political fraud. And the Republicans ought to be ashamed of themselves.
KRAUTHAMMER: I was going to take the reasoned position between --
WILSON: Which is?
KRAUTHAMMER: -- the two extremes, but after hearing Mort, I guess I'm just going to have to attack him on this. Look, the minimum wage -- estate tax first of all, penalizes a lot of small businesses, and the reason that Republicans are trying to match a minimum-wage hike with estate-tax relief is that it says to a small-business owner, "Yes, you're going to be hurt if the minimum wage is raised, but we're going to try to help you on the back end when you die, so your heirs are at least going to have something to inherit and not nothing." So I think it's a reasonable combination of those two. You want to raise the minimum wage, but if it's not economically determined, if it's not as a result of increased productivity, it will be -- it's going to harm business, and it also is going to also eliminate some people from the wage market, from the labor market.
KONDRACKE: Productivity -- productivity is surging -- productivity is surging, and workers are not sharing in those productivity gains.
KONDRACKE: They're not. They are simply not. Wages have been flat.
KRAUTHAMMER: The way to answer what you're saying -- so why not raise it $10 an hour. And the reason is, if you raise it $10 an hour, it will destroy jobs.
KONDRACKE: It has not been raised for 10 years.
KRAUTHAMMER: It will always destroy jobs, it's always a question -- it's only a question of how high do you want to go.