A victory for the estate tax's unlikely enemies

Salt shakers
July 2002

A victory for the estate tax's unlikely enemies
When a bill to repeal the estate tax recently failed Congress, a group of very unusual suspects celebrated victory.

The names Bill Gates, Sr., Warren Buffet, Ted Turner, and George Soros generally bring to mind images of handsomely dressed men on the cover of magazines like Fortune and Money with headlines that might read "How you can become the wealthiest man in America."

But it was, in fact, a coalition of these men—along with 1,100 other millionaires—who lead the charge against repeal, citing the need to break the cycle of economic inequality in America. They are part of a national association called Responsible Wealth, self-described as some of the wealthiest 5 percent of Americans "united by a common concern" that "many are not sharing in the prosperity."

In 1997, when a previous bid for repeal was making its way through the halls of Congress, a prophetic conversation between attendees at a socially responsible investing convention sparked the establishment of a formal coalition against it. Chuck Collins, co-founder of United for a Fair Economy, a national non-partisan organization that focuses on economic inequality in the U.S., was discussing the repeal issue with Bill Gates, Sr., father of Microsoft mogul Bill Gates, and another household name billionaire that has wished to remain anonymous. The small group decided they must take formal action to prevent the repeal and Responsible Wealth was born.

The repeal actually passed both houses of Congress in 2000, but Bill Clinton vetoed it. When George Bush came into office, the end of the estate tax thus seemed something of a sure thing. But due to intense lobbying from groups like Responsible Wealth, its repeal has been defeated three times in three years.

Gates has emerged as the primary spokesperson on the estate tax issue for Responsible Wealth. In his comments to the press he focuses on fundamental justice of giving back to a country that has given so much to people like him. In his March 15, 2001, testimony to Congress he said he accepts the estate tax, as he does other taxes, "as the price of living in the United States and being a U.S. citizen. It is appropriate that a special tax be imposed on those who have so very fully enjoyed the benefit of the things this country provides: schooling, order, freedom, and encouragement to succeed and models of success."

Critics say it is fine for the extremely wealthy to accept such a tax because their fortunes are so large that their heirs will still be million- or billion-aires after the tax is applied. National lobbies formed to end the "death tax" have presented small family business owners and farmers as victims of an unfair tax that prevents them from passing on hard-earned assets to their children. Collins and Gates dispute this notion in an American Prospect Op-ed column, arguing that the tax primarily affects the wealthiest 2 percent of the population, "the bulk of [the tax] is paid by fewer than 3,000 estates with assets in excess of $5 million."

Another argument often cited in favor of repeal says that the estate tax is a double tax, garnishing assets from monies that were already taxed by income or property tax. But Betsy Leondar-Wright, communications director for Responsible Wealth, says this is a false notion. "Money is taxed when it changes hands," she says, "I earn a paycheck and that gets taxed. I purchase something at the store and that gets taxed. Most of the money being taxed by estate tax has never been taxed before because it has never changed hands, it is capital appreciation, things like the increased value of a home or stock. The heir receives the asset and pays tax on the appreciated value. If not for the estate tax, that money would never get taxed."

Leondar-Wright says Responsible Wealth opposes repeal of the estate tax for three main reasons. First, it is bad for society to let an aristocracy of wealth develop. The tax is not meant to diminish the value of small estates, or even small fortunes from being passed on. In fact, the first million dollars of an estate is exempt from tax and that limit will increase to 3.5 million by 2009.

Second, the loss of government revenue would inevitably lead to loss of services or a necessity to draw taxes on other sources. Estate tax revenue is estimated at 60 billion dollars a year in the coming decade, or 10 percent of the non-military discretionary budget. Without this income, current programs would have to be scaled back.

Third, without an estate tax, says Leondar-Wright, charities would see a drop in donations. Estate planning prompts a lot of people to choose charitable gifts.

In Gates' testimony to Congress he said, "I believe, with Theodore Roosevelt, Louis Brandeis, Herbert Hoover and scores of other wise observers in the early 1900's that it is not in the best interest of our country to have large fortunes passed from generation to generation, forming ever larger pools of money and accretion of power. . . While we may not be able to ensure that all children start their lives on a level playing field, that is something we should strive for . . . A good life should be something which is achieved, it should not be delivered as a result of the womb you happened to start out from."

Responsible Wealth deals with several other economic issues as well and supports Living Wage legislation to increase minimum wages, calls for greater corporate accountability, and promotes broadened asset ownership for all Americans.—Tara Dix

For more information:
United for a fair economy
Americans for a fair estate tax
OMB Watch

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