Some Personal Thoughts on the Estate Tax

Last week I posted a link to a satirical article about the estate tax.  In my post, I assumed that Clark Allison -- who had posted about how Karl Marx would have been in favor of the estate tax -- was also being satirical.  According to Mr. Allison, this was not the case.

It might surprise Mr. Allison to learn that I too am philosophically against the estate tax.  I see no reason why the government should try to topple family dynasties when (1) such social engineering rarely if ever works, and (2) family dynasties (usually via incompetent and/or lazy members of following generations) do such a good job of toppling themselves.  (Note that, if you run through the profiles of the wealthy families who are most actively lobbying for repeal -- like the ones listed in this pdf report on "The Campaign of the Super Wealthy to Kill the Estate Tax" -- you won't run across many first generation business creators.)

My philosophical objection to the estate tax is tempered by two interrelated points:

1. As The New York Times again pointed out in yesterday's magazine, under the current administration,  the budget deficit has risen from about $5.7 trillion (as of September 7, 2000) to more than $8.3 trillion today -- and projections indicate it will be about $12.8 trillion in a decade. 

I've read where some people believe the estate tax is immoral.  I guess morality is relative, because I tend to think that saddling my daughter and her children and grandchildren with increasingly enormous amounts of debt is a fairly huge moral failing. 

Mr. Allison states that "Like with all tax issues, it comes down to this: Who do you trust to make better use of your money - you and your family or the government?" But that's non-responsive -- this administration has already spent a ton of my money.  In fact, they've spent a ton of my money, and a ton of money they don't even have.  The question now is, who is going to pay for all of that spending?  "Repeal the estate tax" isn't an answer to that question.

2. To continue from above, if you want to repeal the estate tax, you have to show either that (a) doing so will not result in a loss of revenues or (b) the loss in revenues will be made up elsewhere.  I don't believe I've heard many people address either of these points.  Instead I've heard:

a. "Our polling says Americans hate the 'death tax.'"  Never mind the fact that pro-repeal folks have consistently distorted what the "death tax" is (even inventing a new name for it!) and who it affects when they do their polling.

b. "Farmers and small businesspeople are devastated by the tax!"  Of course, no one can locate any specific farmers who have been devastated. 

c. "The estate tax is bad because it affects too many people."  And yet the latest estimate is that about 13,000 estates will pay federal estate tax this year.

d. "The estate tax is bad because it affects too few people -- it just doesn't generate revenue!"  What about the huge predicted increases in estate tax revenues in the coming years? 

e. "The estate tax is bad because it causes people to want to make less money."  A tax that almost no one understands, that affects very few estates, is acting as some huge deterrent to the accumulation of wealth?  Is there evidence of any real, specific cases where this actually happened?  Do we have significantly fewer wealthy people now than we did before the estate tax was enacted?

f. "The estate tax amounts to double taxation!"  Except on all of that property that hasn't yet been subject to tax even once, of course.

g. "Look at all of the countries that don't have or have gotten rid of the tax."  Remember the Republican outrage over the Supreme Court's consideration of foreign law in Roper v. Simmons?  Evidently it has dissipated -- WWJD has been replaced with WWCD (What Would China Do?).

h. "Karl Marx liked the estate tax."  Yikes!  I don't even know what to say to that.

As I've stated previously, this isn't really an issue that impacts me professionally -- I did a lot of estate tax work back in my associate days, but about 1% (or fewer) of my current clients will have any sort of taxable estate.  I spend most of my days handling probate and probate litigation, or doing simple estate plans.

On a personal basis, though -- as a taxpayer and a citizen -- I'm just tired of the pro-repeal "arguments." If you don't like the estate tax because you think it's unfair to the rich, and you want to spread the revenue lost by the tax over the general population (by raising income tax rates, via a carryover basis regime, or something else), then just say that.  I'll probably agree with you.  But I'm sick of hearing ridiculous arguments (and even some outright lies) trotted out in an attempt to convince the American public of a course of action.  If we've learned anything over the past 4 years, it's that that kind of thing doesn't work.

Comments

[Juan C. Antunez]

Hi Joel -

My impression is that like most political discourse today, advocates of estate tax repeal and those in favor of retaining the tax simply speak past each other. In today’s political/media environment we can all find media outlets, think tanks, blogs, etc. that will tell us exactly what we want to hear. If you’re in favor of estate tax repeal, there’s all sorts of stats you can point to in support of your position. If you’re in favor of retaining the tax, likewise. See: http://www.dailykos.com/storyonly/2006/5/1/84844/87008

Undeniably, however, there are no free rides. Those in favor of estate tax repeal should frame the issue honestly:

1. Should we tax less ($1 trillion to hundreds of billions depending on whose stats you believe) AND cut government spending accordingly?

Republicans voted to eliminate the “Pay-As-You-Go rule (PAYGO)” rules that used to require this sort of explicit trade off when voting on tax and spending issues. See: http://www.cbpp.org/3-14-05bud.htm Republican efforts to cut taxes without offsetting spending cuts appear disingenuous to me, even if you buy the argument that tax cuts pay for themselves – which I don’t. See: http://www.realcities.com/mld/krwashington/news/nation/14603575.htm

2. Should we NOT cut government spending and shift the burden of taxation from one segment of the U.S. population (those with large amounts of capital-based wealth, e.g., cutting capital gains tax, cutting/eliminating the estate tax) to another segment of the U.S. population (e.g., higher income taxes on wage earners)?

In fact, when framed honestly most people do NOT favor estate tax repeal. See: http://www.coalition4americaspriorities.com/pdfs/polling-20060226.pdf

[Jeremy]

Speaking of taxation misnomers, why aren't people discussing the repeal of the living tax ("sales tax") or the job tax ("income tax")? Think of the thousands of Americans who are deterred from living and working by the living tax and the job tax. Think of how productive we could be without the job tax. I bet we could get unemployment down to 1%.

[T.A. Freeman]

What idiot suggested that "no one can locate any specific farmers who have been devastated"? Are you saying that no one gets hurt by this? How about our small family business of 4 apartment buildings in Orange County that will have to be sold to pay those death taxes. The business will not be able to survive both the 45 and 55 percent rates that are being levied against us. This 38 year old family operated southern California business will be completely destroyed in less than 8 months from now. Save your uptown social commentary for those that never have to lose everything they have ever known. As a family, we will survive this, but it hurts to watch everything our parents worked for taken away.