July 28, 2005 – Even societyâ€™s most fortunate cannot escape death, but for the ultra-rich, lifeâ€™s other great certainty may soon become much easier to avoid. A measure to repeal the estate tax could come up for a vote this week, according to reports from congressional staff, forcing legislators to confront a law that has generated intense conflict over the tax levied on a tiny yet extremely wealthy sliver of the population.
Although the House of Representatives passed a bill to repeal the estate tax in April, political analysts predict that in the Senate, a repeal initiative would fail to garner the 60-vote majority needed to overcome a filibuster, particularly because of looming concerns about social security reform and pressure to cut federal programs.
But progressive groups still worry that absent a repeal, conservatives will instead push a lopsided compromise that would have the same negative impact: greater inequality and a hollowing out of federal resources.
The estate tax, in many respects, will never directly impact the average American. The tax currently applies to the richest one percent of deceased people, with inheritable estates worth over $1.5 million. Though critics denounce the seemingly high maximum payment rate of 47 percent, the liberal think tank Center on Budget and Policy Priorities reports that after complex deductions and loopholes, this levy skims on average less than 20 percent off taxable estates.
Progressive groups see the tax as a counterweight to morally questionable affluence bestowed on heirs.
Anti-tax conservatives are hoping to bring those figures down to zero, mobilizing public support through well-funded media campaigns that vilify the so-called "death tax" as morally unjust. Progressive groups, meanwhile, are scrambling to convince policymakers and their constituents that any rollback of the tax would only enable the richest families to horde more of the countryâ€™s wealth.
Penalizing Work or Distributing Wealth?
Anti-tax factions nearly buried the estate tax in 2000, when they passed a measure that exempts more and more estates from the tax each year and eventually phases it out completely in 2010. But without further action from Congress, the estate tax will bounce back to its original, higher rate schedule in 2011. As the expiration of the law nears, pressure has tightened on both supporters and detractors to reach a permanent solution to the issue.
Under a full repeal, the federal government would hemorrhage approximately $1 trillion in the first decade, according to analysts at the progressive Tax Policy Center, which calculated both the direct revenue loss and the accumulated federal debt interest.
Short of total abolition, anti-tax legislators are aiming to permanently gut the estate tax code. Senator Jon Kyl (R-Arizona) has reportedly pitched a reform proposal on Capitol Hill to lower the rate to 15 percent and exempt all individual estates worth up to $3.5 million, or $7 million combined for couples. The Center on Budget and Policy Priorities found that if enacted, Sen. Kylâ€™s proposal would sap from federal coffers roughly $770 billion, including debt interest, from 2012 to 2021.
The estate tax acts as a mechanism to divert some of the wealth at the top of the income scale away from heirs and toward the needy.
Challenging conservativesâ€™ portrayal of the estate tax as the immoral confiscation of dead peopleâ€™s earnings, progressive groups see the tax as a counterweight to morally questionable affluence bestowed on heirs.
"Itâ€™s not a tax on death. Itâ€™s a tax on the transfer of enormous amounts of wealth," said Anna Oman, a spokesperson for the Washington, DC-based public interest group OMB Watch, which leads Americans for a Fair Estate Tax, a national coalition of nonprofit groups.
Chuck Collins, co-founder of United for a Fair Economy (UFE), which advocates on issues of wage and income inequality, commented that by progressively taxing those who have amassed the most wealth in life, "we recycle some of that wealth, so that others can have the same opportunity."
Progressives have presented hard numbers to hint at how the money extracted from the richest estates might be put to use elsewhere. UFE points out that in 2003 alone, the $20 billion in revenues from the estate tax and the parallel gift tax, which applies to property transfers, roughly equaled the combined budgets of the Environmental Protection Agency and the Department of Labor.
The Congressional Budget Office (CBO) projects that even at the reduced taxation level slated for 2009, which would impact only estates worth over $3.5 million, the estate tax would still yield enough funds to plug half the budget gap in social security over the next 75 years.
Defenders of the estate tax say it also acts as a mechanism to divert some of the wealth at the top of the income scale away from heirs and toward the needy, providing a major incentive for the wealthy to make tax-exempt donations to social causes upon death. The CBO estimates that had Congress repealed the tax in 2000, US nonprofit organizations would have lost an estimated $13 billion to $25 billion that year.
Liberals have failed to respond with a strong message undercutting the concept of inherited wealth.
"The loss of revenue from charitable bequests," stated Americans for a Fair Estate Tax in a recent policy analysis, "would mean that hospitals, universities, religious institutions, and humanitarian assistance organizations will lose a vital source of capital that cannot be replaced."
The National Council of Nonprofit Associations has argued that a repeal of the tax would be a double blow to the nonprofit sector; the reduced revenue would lead not only to the weakening of private charitable resources, but also the evaporation of government funding pools for social service work. Supporting the tax "as a vehicle for democracy and economic justice," the Council has pushed for taxing estates worth more than $2 million at a rate of up to 45 percent, pegged to inflation.
Opponents of the estate tax charge that it discourages hard work and economic growth by eating into the capital that a rich individual could otherwise save or invest. "Itâ€™s economic freedom to decide what you want to do with your estate," said Devon Herrick, an economist with the conservative think tank National Center for Policy Analysis.
But in recent studies, both the CBO and the Congressional Research Service (CRS) have found no convincing evidence that the estate tax impacts investment any more than ordinary income taxes do.
Conservatives also argue that because the super-wealthy can pay lawyers and accountants to thread their fortunes through tax loopholes, the fiscal burden then falls more heavily on what Herrick called "the small guys" -- well-off small business owners and farmers. Yet according to the CRS, only about 5 percent of farmers and 3 percent of business owners who died in 2002 paid the estate tax.
While some agricultural associations promote anti-estate tax measures, the National Farmers Union (NFU), which represents family farms across the country, has opposed a full repeal, though it has endorsed reforms to exempt more modest farm estates. The organization has argued that on the issue of the estate tax, the interest of family farmers has more in common with working Americans than with millionaires.
Noting that decreased federal revenue under a repeal would threaten the governmentâ€™s "farm safety net," including agricultural income supports and research initiatives, NFU spokesperson Emily Eisenberg remarked, "We donâ€™t think a blanket repeal of this is whatâ€™s best for the economies of the communities we represent."
Conservatives Dictate Terms of Tax Debate
As activist groups defend the estate tax as one of the few mechanisms tethering the richest Americans to social responsibility, they have run up against a well-oiled conservative public relations machine that has deftly appealed to public sympathies.
Ian Shapiro, a professor of political science at Yale University who recently co-authored a book on the politics behind the estate tax, observed that conservatives have controlled the debate by "shifting the [publicâ€™s] focus from the ultra-rich to the working rich, and emphasizing â€¦ hard work and the American Dream."
Meanwhile, argued Shapiro, liberals have failed to respond with an equally strong message undercutting the concept of inherited wealth. "The Democrats never got the focus off the people who make the money and [onto] the people who get the money," he said.
Collins of UFE said that progressive advocates, forced into a defensive position, are "not thinking proactively about this," instead concentrating their efforts on freezing the tax around current levels, rather than pushing for more redistributive tax system.
Unlike more pragmatic organizations, UFE seeks to make the estate tax structure more progressive, raising the top rate for estates worth over $20 million. But according to Collins, the prevailing theme in the anti-repeal movement has been "â€˜Letâ€™s cut a deal,â€™ as opposed to, â€˜What is another way to maybe frame this even more boldly, and within American traditions?â€™"
Collins fears that if groups advocating for economic equality do not step up the fight to protect the estate tax, they could be setting themselves up for bigger defeats in the future. "Itâ€™s the most progressive tax," he said. "So, if you canâ€™t even make the moral case to defend the most progressive tax, how are you going to defend a progressive income tax?"