The U. S. Senate will vote in early June on repealing the Estate Tax. Like most Republican Senators, Wayne Allard from my state of Colorado wants to repeal it.
Allard's latest statement on this subject is full of falsehoods. After all these years of Senate debates on this issue, you'd think he'd have his facts straight by now.
More disturbing is that many Senators believe that wealthy heirs should simply be handed huge sums of money tax free, while we ordinary citizens should not only have to work for a living, but we should pay taxes on what we earn.
The drive to repeal the Estate Tax is a class-warfare attack by Republicans and some of their wealthy backers. In this war, our side needs ammunition. Here it is: some basic facts about the Estate Tax.
The most basic fact about the Estate Tax is that most of us will never pay it.
The federal Estate Tax applies only to estates of at least $2 million for an individual, $4 million for a couple. According to this report from United for a Fair Economy (UFE), because of recent increases in exemptions, 99.7 percent of estates are now exempt from the Estate Tax. (UFE's website has lots of information on this topic.)
The Estate Tax imposes a tax on the transfer of Huge Sums of Money. Of course, these heirs did no actual work to earn these Huge Sums of Money. So, the Estate Tax is about the most fair kind of tax that anyone could think of.
Normal people who have actual jobs with actual salaries pay tax on their income. Given this, one wonders why Congresspeople believe that heirs should be handed huge fortunes, tax-free, while everyone else has to pay taxes on the money they work for. (One possible reason: many Congresspeople are themselves multi-millionaires. More on this below.)
What would a Senator say if someone asked at a public town meeting:
"Senator, why should Paris Hilton inherit millions without paying tax, while I have to pay tax on my paycheck from Wal-Mart?"
Inheriting a huge fortune violates the work ethic that Republicans claim to believe in. It also violates our basic American value of equal opportunity. And it's even more anti-American to inherit a huge fortune tax-free.
A Campaign of Disinformation
The campaign to repeal the Estate Tax is based on falsehoods. For example:
Estate Tax: Hurting Family Farms?
One of the biggest phony arguments is that the Estate Tax hurts family farms. This fact sheet says:
"On April 8, 2001, the New York Times reported that the pro-repeal American Farm Bureau Federation could not cite a single case of a family farm lost due to the estate tax."
And that was when the exemption was much smaller than it is today.
Yet 5 years later, Senator Allard is still trying to mislead people about this. If you send him an email on this subject, you'll get a reply that states:
."..the estate tax ... destroys family businesses and farms. ... No American family should lose their farm or business because of this punitive tax."
A study, Effects of the Federal Estate Tax on Farms and Small Businesses by the Congressional Budget Office, also shows that the Estate Tax does not hurt family farms and businesses. This study was summarized here. (Note: exemptions are even higher now than when that summary was written last summer, so even fewer farms and businesses are affected now).
Estate Tax: Double Taxation?
Another falsehood is the claim that the Estate Tax constitutes double taxation. Again, Senator Allard:
"The estate tax is double taxation. At the time of a person's death, much of their farm, business, and life savings has already been subjected to federal, state, and local tax. Then, these same assets are taxed again under the estate tax."
The Estate Tax is not double taxation, for two reasons.
First, dead people don't pay taxes. The Estate Tax paid by heirs because it is deducted from what they receive. The estate is new income for them, and they pay taxes on it just once.
Money is usually taxed when it changes hands as it moves through the economy. Suppose I earn money and pay tax on it. Then I buy something from you. You have to pay tax on that income, just like I did. By no reasonable definition is that "double taxation": each person who receives income is taxed only once.
Second, the bulk of large estates is in the form of unrealized capital gains that have never been taxed. See this fact sheet. For these assets, the Estate Tax would constitute the first taxation. So, without the Estate Tax, these assets would not even be taxed once.
Other falsehoods are being spread by those who want to repeal the Estate Tax. But the majority can arm itself with facts, then fight back by speaking up.
Who Really Wants to Repeal the Estate Tax?
A recent report, "Spending Millions to Save Billions" by Public Citizen and United for a Fair Economy reveals that the campaign to repeal the Estate Tax has been bankrolled by 18 of America's wealthiest families. Among them is the Walton family of Wal-Mart fame. Another is the DeVos family of Michigan, one member of which, Dick DeVos, is trying to become Michigan's next Governor. (Thereby illustrating the connection between financial power and political power.)
Some Senators would personally benefit from Estate Tax repeal because they are multi-millionaires themselves. In 2003, the U. S. Senate had about 40 millionaires. See here. 22 of these 40 were Republicans.
The following multimillionaire Republicans are rich enough to be affected by the Estate Tax, and have voted to repeal it: Richard Shelby (AL), Olympia Snowe (ME), Chuck Hagel (NE), Mike DeWine (OH), Gordon Smith (OR), Arlen Specter (PA), Bill Frist (TN), Lamar Alexander (TN). Ben Nelson, "Democrat" of Nebraska, joined them.
Most super-rich Democrats in the Senate voted to keep the Estate Tax in place. (However, you still have to wonder: how can the average person expect the Senate to represent his or her interests when 40 out of 100 Senators are millionaires?)
One interesting study listed here shows how much Bush, Cheney, and members of Bush's (2005) Cabinet would benefit from Estate Tax repeal. The short answer: a lot! It's no wonder the elites support repeal.
The Wealthy: Some of Them Do Have a Conscience
Some wealthy people do support the Estate Tax. Among them is William Gates Sr., the father of Bill Gates. Gates Sr. is wealthy in his own right. Others include Warren Buffett and George Soros. Like many other wealthy people, they acknowledge having received many benefits from society, and they have an obligation to pay some of it back when they die. Wealthy supporters of the Estate Tax have formed the group, "Responsible Wealth".
Democracy Requires an Estate Tax
If the Estate Tax were repealed, we would soon have a permanent aristocracy based on inherited wealth. Wealth allows one to buy political power and access to elected officials, which of course even further tilts the balance of power in favor of the wealthy elites, against the needs of the majority. A permanent aristocracy with political power is incompatible with democracy.
Of course, an aristocracy is very compatible with elected officials who seek large campaign contributions. This partly explains why repealing the Estate Tax has traction among politicians.
The great Supreme Court Justice Louis Brandeis once wrote, "We can have a democratic society or we can have great concentrated wealth in the hands of the few. We cannot have both."
The Case for Increasing the Estate Tax
A good argument can be made for increasing the Estate Tax. A 1997 study, "Born on Third Base" by UFE shows that 47 percent of those on the Forbes 400 list of richest Americans got there directly by inheritance - that is, they would have gotton on the list even without working a day in their lives. So much for meritocracy. So much for the work ethic. And since then, the Estate Tax has been lowered even further, so wealthy heirs will now acquire even more wealth.
Estate Tax Repeal: Class Warfare Against the Rest of Us
A very tiny, very wealthy, group of families has conducted a disinformation campaign to repeal the Estate Tax. Their goal: to establish themselves as a permanent aristocracy. Many politicians who know where their next campaign contribution is coming from, are working on their behalf. If the Estate Tax is repealed, federal revenue will drop. The rest of us will either see further declines in our public infrastructure, or pay higher taxes to make up the difference. Politicians will become more dependent on this aristocracy to fund their campaigns, and they will pay even less attention to the common good than they do now.
Let's call this what it is: class warfare.
Call Your Senators Today
The Senate may vote on repealing the Estate Tax in early June. Do you have an opinion on whether America should be ruled by a permanent aristocracy of inherited wealth? Do you believe that wealthy heirs should pay taxes on what is handed to them on a silver platter?
If so, you can express your opinion to your Senators. Their addresses and phone numbers are here.
An earlier version of this was posted on www.unbossed.com.