So the Rich Get Richer?
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.