Easing the estate tax

Posted: Feb 23, 2001 12:00 AM
Here in Washington, D.C., there are thousands of foreign officials with diplomatic immunity. Generally, this raises few problems. One hitch, though, is that throughout Washington, foreign diplomats tend to park their cars wherever they want, secure in the knowledge that they'll never have to pay parking tickets or fines. You might shrug and say, well that's just the way the world works. But how would you like it if some scofflaw Frenchie started lecturing America about how America needs steeper penalties and stricter parking rules? Well, direct that hypothetical bile toward the very real ad in The New York Times last weekend supporting the estate tax. These mega-rich social do-gooders are essentially immune to the tax, but they feel it is important for other people to pay it. The estate tax, also known to many as the "death tax," kicks in when you kick the bucket. Because the first $675,000 of an estate is exempt, 98 percent of Americans avoid paying it. Because that sounds like a lot of money, many people think that the estate tax only affects the super-rich, and who wants to give a tax break to people whose personal wealth falls into Richie Rich's bracket? Hence the brilliance of having the world's most famous super-wealthy people lobby in behalf of the tax. As The Washington Post's E.J. Dionne gleefully puts it, "If these mega-millionaires think repealing the estate tax is unfair to average Americans, what should average Americans think?" Well, they should think they're being conned. For example, Brett Fromson of the Street.com writes that George Soros, a member of the pro-death-tax brigade, pays almost no income tax of any kind. By exploiting an obscure loophole, Soros parks the vast bulk of his billions in offshore hedge funds. Indeed, Soros, like the illegally parking diplomats, is unlikely to have his estate taxed at all when he dies (assuming he doesn't buy a clone). Indeed, the super-rich signatories to The New York Times ad have no reason to fear the estate tax bite. Billionaires generally have a whole kennel of accountants and lawyers who set up trusts and foundations that immunize them from such concerns. Even if they didn't have shelters for their billions, it wouldn't matter. If Bill Gates gave away 99 percent of his $43 billion to the government and charities, his kids would still have $430 million to play with. That's still plenty rich. "The dirty little secret of the death tax," writes Steven Moore, director of fiscal policy studies at the free-market Cato Institute, "is that the people who are clobbered by this tax are not billionaires. Typically they are ordinary Americans with medium-sized estates." Family farmers, small business owners, independent car dealers, mom and pop shops on nice pieces of real estate: These are the kinds of people who are unfairly penalized by the estate tax. When they die, their children are often forced to sell the business because they can't afford to pay the taxes on the "windfall." What makes this even more unfair is that the investments that went into the business and the assets in the estate were already taxed throughout the deceased's lifetime, both by capital gains taxes as well as income taxes. (There's also an aspect that should appeal to liberals. There is a tragic shortfall of family wealth in the black community. If you want more black business, stop taxing them to death.) Opponents of the repeal like William Gates Sr. - the father of the richest man in the world - argue that charities will be hurt by the closing of loopholes and that the government needs the revenue. The first argument is plausible but not assured. Lowering taxes creates wealth, and the research is fairly settled that wealth creation increases charitable giving. That's certainly what happened in the 1980s. Despite the tightening of tax-deduction loopholes, individual philanthropy rose from $70.5 billion a year in 1980 to just over $100 billion in 1990 (all measured in constant 1993 dollars). The second argument - the government needs the money - is simply absurd. The estate tax collects only 1.5 percent of total government revenues. Surplus projections grow daily and, besides, the estate tax impedes economic growth by hurting small businesses. Gates and Co. say they're trying to prevent the creation of a hereditary "aristocracy of wealth." But that aristocracy already exists. The elder Gates could be its poster boy. After all, he didn't amass his son's fortune, did he? Ultimately this is simply limousine liberalism. Just as rich do-gooders like Ted Kennedy oppose things like school choice while they send their own kids to private school, they don't mind the government blocking others' prosperity because, hell, they've got theirs.