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The All-American Estate Tax

By Jerome Richard

August 30, 2005

When Congress reconvenes, President Bush will continue his assault on taxes paid mostly by the wealthy by urging permanent repeal of the estate tax. Right now, the tax is scheduled for gradual reductions, phasing out entirely in 2010, but if nothing is done it will be reinstated in 2011 at its original 55% rate. Nothing should be done. Not only is the revenue needed, but no tax is more in keeping with basic American values than the estate tax.

A founding principle of our country is that all men are created equal, which is generally understood to mean that all people should be born with equal opportunity. Equal opportunity may be only an ideal, but it is an American ideal, and a system of inheritance that concentrates wealth and singles out the few for a huge advantage is inherently un-American. Indeed, many colonists came here to escape Europe's class system. Eliminating the estate tax threatens to establish that class system here.

As Bill Gates Sr. and Chuck Collins wrote in an article in The Nation (1/27/03): "Originally passed in 1916, the estate tax was a fundamentally American response to the excesses of the Gilded Age." We see those excesses now in the outlandish salaries and bonuses given to some of our business executives.

Advocates of eliminating the estate tax also profess good old American values. They say the tax (which they coyly call a "death tax") prevents passing on a hard-earned farm or small business to one's heirs, but that is a smokescreen. The first $1.5 million of an estate's value is exempt now and under present law that rises to $3.5 in 2009. The Congressional Budget Office estimates that by that time only 65 farms in the entire country would owe any estate tax at all.

Even at last year's rates, the Tax Policy Center says of all the taxable estates only 440 were farms or business. In any event, passing on a farm or business does not guarantee that one's heirs will continue it. Some heirs take the money and run.

If preserving small farms and businesses were the real reason for eliminating the tax, it could be accomplished with an exemption that did just that or one that suspended the tax for heirs who actually carried on the business. But eliminating the tax altogether obscures all distinctions between an estate that consists largely of a farm or hardware store and one that consists mostly of stocks, cash, and property. The tax currently is paid by less than 2 percent of the population, and only after the already generous exemptions are applied. None of the estate that passes on to a surviving spouse is taxed, nor is money that is left to a qualifying charity. Eliminating the estate tax eliminates an incentive to remember charity in one's will.

It is understandable that one would want to leave a large inheritance to one's children, even at the risk of spoiling them, but how much is too much? It is odd that so many people who profess a belief in hard work, and who have attained considerable material success that way, want to endow their children with enough money to keep them indolent the rest of their lives. In his Gospel of Wealth (1901), Andrew Carnegie wrote: "The thoughtful man must shortly say, 'I would as soon leave to my son a curse as the almighty dollar,' and admit to himself that it is not the welfare of the children, but family pride which inspires these legacies."

So, the estate tax is not only a good American tax, it is good for the heirs because it gives them the self-respect that goes with using their own talent and energy to make their way in the world. It is good for society because parents will either turn a portion of their wealth to some public good, as Carnegie famously did, or else the heirs will make a contribution in the form of a reasonable tax to the public treasury. Losing that contribution in the face of record deficits is something the nation cannot afford to give up. And if the revenue from the 2 percent of people who currently pay any estate tax is lost, either the middle class will soon be asked to make up the lost revenue, or the poor will be told to suffer the consequences. In fact, eliminating the estate tax is just another scheme for getting the middle class to pay the taxes of the super-rich.

But if the tax only encourages people to contribute to the public good, then we will all benefit. As Gloucester says in King Lear, (IV,1): "So distribution should undo excess,/And each man have enough."

Jerome Richard's novel, The Kiss of the Prison Dancer, was published last year. He wrote "Deficit Delight" as a Guest Essay for the Crisis Papers.


Crisis Papers editors, Partridge & Weiner, are available for public speaking appearances