Mortimer B. Zuckerman, Editor-in-Chief of US News & World Report, has this to say about the estate tax:
The political argument over the inheritance tax or, as its opponents like to call it, the death tax, brings to mind the approach a charity made to a very rich member of the community. "Our research," the charitable group gently told the man, "indicates that you have contributed nothing to any of the civic, cultural, medical, or educational organizations that have contributed so much to the environment that made your success possible. So we are here to ask you for a donation."
The rich man replied: "Did your research find that my 95-year-old mother has Alzheimer's, requiring 24-hour-a-day, very expensive, highly qualified nursing?" "No," the group replied. "Did your research uncover that my brother was involved in a car accident in a foreign country from which he cannot be removed without his having at least six operations to help him recover his ability to walk?" "No," the group admitted. "Did your research discover that my daughter has been abandoned and now divorced by her husband, who left her with three young children and no means to support herself?" "No," the group replied. "Well, then," the rich man said, "if I don't give money to them, do you think I am going to give money to you?"
The story captures for me the attitude of those who now favor granting a huge tax break to the richest Americans. Congress, in the deceptive 2001 budget, voted to reduce the estate tax gradually until it ultimately vanishes in 2010 and to reinstate it completely in 2011, with a tax of 55 percent on estates after the first million.
Scare tactics. The House of Representatives has voted to repeal the estate tax altogether, and the Senate is moving toward a very significant reduction. This year the tax is collected only on assets of more than $1.5 million. That would account for about 18,800 people, less than 1 percent of the 2.5 million people likely to die annually. Of the 18,800, only 440 will leave estates with assets primarily generated by farms or family-owned businesses. That's relevant because proponents of eliminating or further cutting the tax portray it as dismembering family businesses that have been built up over many years. The Democrats, seeking a compromise, have proposed exempting $3.5 million per person, or $7 million per couple, with a reduced tax rate of 47 percent. Under that plan, they would tax only 0.3 of 1 percent of estates, but even so, only the wealthiest of the wealthy would be taxed. If the exemption were set at this level, the Tax Policy Center of the Brookings Institution and the Urban Institute notes, only 50 estates would be those of owners of farms and family businesses. The notion that thousands would be forced out of family businesses is, in other words, preposterous.
So much for scare tactics; now for the effect. The estate tax this year will bring in about $18 billion--not exactly chicken feed. The House motion would cost the nation about $745 billion from 2012 to 2021--call it an even trillion if you figure in the interest we'd have to pay on borrowings to make up for lost revenue.
But wait, the gift to the super-rich is even bigger than it seems at first blush. The effective tax rate wouldn't be 47 percent. It would be much less. Why? Because the tax would be levied only on the amount above the exemption, combined with state tax payments and charitable bequests. In 2003, the Internal Revenue Service reported, the actual inheritance tax rate averaged just 18.8 percent.
Those who would abolish the estate tax contend that it represents a double tax. An individual is taxed, these worthies would have us believe, on assets built over the course of a lifetime and then again at death. This is, to put it charitably, specious. First of all, the tax doesn't kick in until the assets exceed $1.5 million. Second, much of the wealth transferred at death has never been taxed at all, not even once, let alone twice. The largest estates are basically made up of stocks, business assets, and long-held property. Since taxes aren't assessed until such assets are sold, no taxes have been paid on them. The repeal of the estate tax would mean that the heirs would also never pay a dime in taxes.
How, in the face of our increasingly dire fiscal problems, can Congress even think about giving away so much money to this handful of wealthiest Americans? And how dare it add to our national debt in this way when it is cutting so many other vital social programs while forcing the middle class to pay still more in taxes!
Eliminating the estate tax would widen the gap between rich and poor and deepen the divide for generations to come, passing wealth on to those who never earned it, creating a plutocratic leisure class. We would do well to remember that the current estate tax dates to a Republican president named Teddy Roosevelt. It was TR who, among his many other memorable utterances, stated that a "man of great wealth owes a particular obligation to the state because he derives special advantage from the mere existence of government." Amen.