An all too common sight in American politics these days is the fiscal conservative who works diligently to protect the interests of the wealthy -- no matter how costly those protections are. The fight over the estate tax (imposed on the assets of a deceased person) perfectly embodies this phenomenon. And that debate might bubble up in Illinois very soon.

First, let's review how the estate tax operates here in the Land of Lincoln. Prior to this decade, the federal and state estate tax laws worked in tandem. Taxpayers received a dollar-for-dollar credit (up to a specified amount) against their federal estate tax liability. Every state then applied their own estate tax, which was identical to the value of the credit. (Colloquially, it was known as a "pick-up tax.") Let's say you had an estate with taxable income totaling $2,000,000. The feds provided you with a credit of roughly $150,000. (See the state estate tax credit schedule here.) Illinois then levied its own tax equaling $150,000.  In the end, the combined Illinois and federal tax liability were the same as the total federal tax before the credit. But in the process, state legislatures earned a little bit of extra scratch

That all changed in 2001 when Congress enacted President Bush's first major round of tax cuts (legislation known as EGTRRA). That bill phased in a full repeal of the federal estate tax over a 9-year period (set to take effect in 2010). It also gradually increased the federal estate tax exemption -- the amount of money that the wealthy were allowed to shield from the tax. (It was raised to $1 million per individual in 2002, $1.5 million in 2004, $2 million in 2006, $3.5 million this year.) And it phased out the state credit, thereby depriving state governments of the "pick-up tax" revenue. If they didn't want to forgo that money, lawmakers were forced to decouple from the federal statue and establish their own, independent estate taxes.

In early 2003, Illinois did just that. Following the national anti-tax trend, the General Assembly's version matched the rising exemptions included in the federal reform. But there was one key difference: Illinois decided that the highest exemption it would allow was $2 million. That means folks with estates totaling between $2 million and $3.5 million currently owe an Illinois toll without any corresponding federal liability.

The 2001 national reform package included a sunset provision temporarily repealing the estate tax in 2010 and then returning the rules in 2011 to the pre-2001 law, with a $1 million exemption per person and a state tax credit. But President Obama has proposed making the 2009 estate tax rules permanent. Other lawmakers want to trim it even further. In all likelihood, the 2001 rules will not be revisited. And if that happens, Illinois must enact legislation to keep its lower exemptions -- which are scheduled to expire this year -- in place.

Like many do nationally, some lawmakers in Springfield will undoubtedly howl about the importance of repealing what has been falsely coined "the death tax." "It's our turn to bring policies that create an economic climate where our children and grandchildren can thrive," State Sen. Bill Brady (R-Bloomington) said to raucous cheers at the Homer Glen "tea party forum" Wednesday night. "That's why I've called for ... eliminating the death tax penalty in Illinois."

Doing so would be fiscally irresponsible, especially at a time when the state is facing a severe budget crisis. The exemption largely protects against the threat of "double taxation" about which conservatives often cry foul. Instead, it zeroes in on assets that have never been taxed before, like capital gains. Multiple studies have also found that a very small number of family farms and small businesses pay any estate taxes at all.

In reality, the estate tax applies to a very select number of very wealthy individuals. It should also be noted the top 1 percent of households in Illinois currently face an astonishingly low overall tax burden, the 10th lowest in the entire country. The state recently approved legislation giving these married filers serious flexibility in how they deal with the law. And it generates real dollars to fund core social services. In 2009 alone, it brought in $288 million, according to data from the Commission on Government Forecasting and Accountability and the Comptroller's office. Over the past seven years, its raised almost $2 billion.

This is probably the most progressive tax Illinois levies. And we should continue to do so.

Image used under a Creative Commons license by Flickr user wallyg.