Published on 17 December 2009 on City Brights.
By Drummond Pike, Founder and CEO of Tides.
The Wall Street Journal reports that the effort to extend the current Estate Tax regime through next year has failed. As part of the Bush tax cuts, the exemption, above which taxes are due, has been slowly rising. The Conservative plan, put in place in 2001, phases out the tax entirely next year, and then, in the following year, reverts to the 2001 rates and much lower exemption. They couldn’t make it permanent then, as they wanted to do, because it simply cut too much revenue out of the equation, even for the then-dominant Republican leadership on both ends of Pennsylvania Avenue.
Beneath the din of the healthcare debate, and Joe Lieberman’s stunning profile in cowardice and betrayal of his constituency, the inexorable process of displacing taxes from the super-wealthy to the middle class continues its stealthy pace. It is stunning to me that in these particularly dire economic times, the progressive majority in both the House and Senate has squandered the opportunity to extend current year provisions into next year. Neither the House nor the Senate could muster the will to adopt the extension. Lieberman-type leadership at its best?
And the conservatives – wow, they are a whole other kettle of fish. Cynical beyond measure, they figure a bankrupt government is better than no government at all. (Remember that stellar statement by neo-conservative, Grover Norquist: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” So helpful in tough times.)
But this Estate Tax matter is really serious for the non-profit sector – not that you’d really understand that from the way many in philanthropy have used their considerable resources. The Council on Foundations, for instance, does support making permanent the current estate tax regime, though the matter shows up way down their list of public policy priorities, and one has rarely if ever heard the Council’s leadership making the case for the Estate Tax. Even with the more broadly-based, and often far more insightful, Independent Sector, this issue has not really achieved traction with the membership despite the best efforts of its leadership to remind us all of its importance.
Best estimates suggest that the sector will lose $25 billion each year, if the estate tax is abolished. The incentives for the creation of new foundations or the making of very large testamentary gifts to churches and non-profit organizations shift from financial to purely altruistic. In other words, without the tax deductions, people give less. And it means that if a billionaire expires during the next calendar year, she will pass down that entire fortune to her children or other beneficiaries intact. No taxes. No obligation to share with the society that enabled the accumulation of that fortune in the first place. As Bill Gates, Sr. has often commented, these huge fortunes are not easily assembled in other parts of the globe. The infrastructure, educational systems, regulated financial markets (okay, so we still have some work to do!), transportation systems, and everything else that contributes to the creation of successful businesses needs to be supported somehow, and the Estate Tax is a valuable tool for this.
Even more compelling to me, though, are the tragic social and economic consequences evolving from the advent of a new, permanent Upper Class. Declining family size almost ensures that fortunes of $100 million or more can become self-perpetuating fiefdoms in economic terms. In a manner similar to the nobility of the Middle Ages, who reigned over their lands with impunity through primogeniture (i.e. the oldest son gets the whole thing), the new economic elite will become sequestered and insulated from the broader society. Taxes on the income or realized gains from a large fortune will hardly dent its ability to be self-perpetuating. I just fail to see how this benefits society, this diverse and dynamic set of economic and social forces that has created so much in the world. In Kevin Phillips’ Wealth and Democracy, the author draws out the inextricable tie between social equity and the vibrancy of our democratic practice. The fact is inescapable – government must dampen the accumulation of “super-wealth”, and use the proceeds to create opportunity for “the many,” for, after all, the latter is what has always produced the best that America has achieved.
We need your help to preserve the estate tax. Please call the Capitol Hill switchboard at (202) 224-3121 and tell your Senators that they cannot allow the federal estate tax to expire in 2010.
If Congress takes no action before the end of the year, the estate tax will expire for 2010. Let them know NOW that you support the tax, and that you are against tax breaks for multi-millionaires and billionaires.
Thanks for your support,
Chuck Collins, Alison Goldberg, Scott Klinger, Ann Manning and Bill Lyons
Wealth for the Common Good
BACKGROUND on the estate tax:
The U.S. House voted on Dec. 3 to permanently extend the estate tax at its current level. The Senate should do the same or at least pass a one-year extension of the estate tax. Sen. Baucus has implied the Senate may adjourn before addressing the estate tax, and return in early 2010 and retroactively impose it.
In either scenario, your Senator needs to hear from you. According to the Center for Budget and Policy Priorities, if the estate tax were to expire, family farms and small businesses would actually be worse off.
Here’s an op-ed by Bill Gates Sr. and Chuck Collins: Stephen King meets the estate tax.
Posted on The Huffington Post on December 17, 2009
For eight years I have spoken to anyone who would listen about the importance of creating a strong estate tax, and there is no more critical time for action to be taken by Congress on this matter than now.
In a few days the Senate will break for their holiday recess and if they do not act the estate tax will disappear in 2010. The House of Representatives recently cast a 225-200 vote in favor of Rep. Earl Pomeroy’s estate tax proposal, which makes 2009 estate tax law permanent, with a $3.5 million exemption ($7 million for married couples), and a 45% tax rate. If the Senate agrees, the result will still be a loss of $391 billion over 10 years, although that is better than no tax.
Letting the tax disappear entirely will be even more devastating and will cost upwards of a trillion dollars in lost revenue; revenue that supports vital public systems — including transportation and energy infrastructure, education and healthcare — that are the foundation of our broad-based prosperity and economic stability.
This is why I believe we must do more and strengthen this levy, which is our county’s only tax on inherited wealth and applies to less than 1 percent of American families. The estate tax raises substantial revenue from those with the greatest capacity to pay.
If abolished or weakened, there are only three ways to make up the resulting shortfall: cut spending, raise taxes on the middle class, or pile it on to the national debt and leave it to our children and grandchildren who will inherit the consequences of the decisions we make now. This why I and thousands of other wealthy individuals have joined a campaign led by United for a Fair Economy to call on Congress to strengthen the estate tax.
A common, and misguided, criticism of the estate tax is that individuals who work hard and save their money should be entitled to pass on the fruits of that labor to their family. I am not against working hard, saving money, or taking care of your family.
However we must acknowledge that the person who accumulates wealth in this country was not able to do that independently. The simple fact of living in America, a country with stable markets and unparalleled opportunity fueled in part by government investment in technology and research (something my family has plenty of firsthand experience of), provide an irreplaceable foundation for success and have created a society which makes it possible for some men, women and their children to live an elegant life.
I attended the University of Washington under the G.I. Bill, and then became a lawyer enjoying a successful career that allowed me to provide well for my family so that they in turn were able to create their own wealth. So I believe that those of us who have benefited so greatly from our country’s investment in our lives should be asked to give a portion of our wealth back to invest in opportunities for the future.
Society has a just claim on our fortunes and that claim goes by the name estate tax.
Distributed by McClatchy-Tribune News Service on 17 December 2009.
By Bill Gates Sr. and Chuck Collins
Imagine a story about tax policy created by horror writer Stephen King. A fictional Congress, divided between anti-tax ideology and fiscal responsibility, amends the inheritance tax on the very wealthy so that it disappears entirely one year and then returns at steeper rates the following year. Over the “zero year,” death rates skyrocket in the nation’s most affluent ZIP codes. Seemingly robust and healthy billionaires perish in mysterious accidents. Lexus wheels fall off from Bloomfield Hills to Scarsdale to Beverly Hills. Sailboats and yachts inexplicably crash in calm coastal and Caribbean waters. Tainted champagne wipes out clusters of prosperous alumni at class reunions from dozens of elite prep schools from Groton to Choate.
Meanwhile, thousands of infirmed elders take their own lives in organized rituals called “legacy sacrifices.” Pledging unlimited inheritances to their heirs, these multi-millionaires die with smiles on their faces knowing theyve outfoxed Uncle Sam one last time.
If only this were a fiction.
We could actually see these scenarios play next year, unless the real U.S. Congress takes action and prevents one of the more bizarre twists in tax legislation in history from coming to pass.
In 2010, the estate tax, our nation’s only levy on inherited wealth, is set to disappear completely. Then in 2011 the tax returns to 2001 levels, with substantially lower wealth exemptions and higher rates. Talk about perverse incentives.
The stage was set for this scene in 2001, when President Bush and conservative tax cutters tried to abolish the estate tax. They didn’t have the Senate votes, however, for permanent repeal, nor could they afford to lose the hundreds of billions of dollars the estate tax would generate over the subsequent decade.
Congress structured the law to gradually phase out the tax, allowing it to expire in 2010. Then, in a gimmick to mask the real cost of the tax cut, the law sunsets in 2011, reverting back to its 2001 levels.
Tax cutters in 2001 were confident they would return in subsequent years to finish off the estate tax. But the nation’s fiscal situation immediately began to deteriorate and Republicans lost their majority in Congress. In October of this year, the organized wealthy families that spent millions in lobbying Congress to save billions finally conceded they lacked the votes to get rid of the estate tax forever.
You have to remember that the estate tax - at its 2009 level - affects only one in 500 estates. Over the last eight years, the law has been revised so the wealth exemption level rose from $1 million to where it is today, at a generous $3.5 million or $7 million for a couple. Rates declined from 55 percent in 2001 to 45 percent today. This exclusive tax cut for multi-millionaires and billionaires cost hundreds of billions of dollars in lost revenue, a cost added directly to our national debt.
Two weeks ago, the U.S. House of Representatives voted to freeze the federal estate tax at this current level. This is a positive and responsible step. Now the Senate must act.
The Senate could pass legislation that mirrors the House version and settle the issue for years to come. Or they could freeze the tax at its current level for one year - and take it up next year. What they shouldn’t do is further weaken the estate tax by passing proposals such as those introduced by Sens. Jon Kyl, R-Ariz., and Blanche Lincoln, D-Ark.
Without the estate tax, we could lose almost $1 trillion in revenue over the next two decades. There are only three ways to fill that gap: cut spending, raise taxes on the middle class, or - our current favorite - pile it onto the national debt. Instead of leaving prodigious amounts of debt for the next generation, we should retain a meaningful estate tax.
During a time of war and economic crisis, the idea of further tax breaks for multi-millionaires and billionaires is unseemly and unfair.
Bill Gates Sr. is a retired Seattle attorney and author of “Showing Up for Life.” Chuck Collins is co-founder of Wealth for the Common Good (www.wealthforcommongood.org). They are co-authors of “Wealth and Our Commonwealth: Why America Should Tax Accumulated.”
We are partnering with Growth & Justice in St. Paul, Minnesota to host two events in the Twin Cities on the role of wealthy individuals in progressive tax reform.
For more information, contact Ann Manning at ann@wealthforcommongood.org
Published in Oneida Daily Dispatch on 1 December 2009
By Bill Gates Sr. and Chuck Collins
A century ago, President Theodore Roosevelt expressed alarm about the dangerous concentration of wealth and power in the U.S., and called on the incoming 60th Congress to establish a federal estate tax on large fortunes. Its primary objective, Roosevelt said, “should be to put a constantly increasing burden on the inheritance of those swollen fortunes which it is certainly of no benefit to this country to perpetuate.”
One hundred years later, after a 12-year assault, the federal estate tax is here to stay. The anti-tax organizations and wealthy families that spent millions in lobbying funds to avoid paying billions in taxes have conceded they don’t have the congressional votes to abolish the tax. But that doesn’t mean they’ll stop trying to erode it.
In fact, Congress must act in the next month to discourage a year of mysterious deaths in affluent households and prevent further deterioration of the nation’s fiscal situation. Bush-era tax cuts suspended the estate tax in its entirety for the year 2010, creating a bizarre incentive for wealthy people to prematurely die. Then, in 2011, the estate tax reverts back to its 2001 rules. A one-year patch is needed—if not permanent reform—to avert this fiscally and morally problematic scenario.
With health care dominating the political calendar, Congress may not have the bandwidth to engage in a robust debate about the future of estate tax, but inaction isn’t an option. There’s a serious risk that estate tax opponents will attempt to permanently gut the law further, enabling additional loopholes for wealthy families.
The current estate tax generously exempts the first $3.5 million of a person’s estate and $7 million for a couple. One option before Congress is to freeze the tax at these 2009 levels and index it to inflation. Other options include establishing a progressive rate structure so that smaller estates pay lower rates, while larger estates—those with over $50 million—pay higher rates. Whatever Congress does, it shouldn’t dilute the tax from its 2009 level.
The facts are clear: The estate tax raises substantial revenue from those with the greatest capacity to pay. Abolishing the estate tax would cost more than $1 trillion over the next two decades. There are only three ways to fill that shortfall: cut spending, raise taxes on the middle class, or, the current favorite: pile it onto the national debt.
Instead of leaving a prodigious national debt for our children and grandchildren, we should retain a robust estate tax, avoid the unprecedented interest costs of that debt, and make long overdue investments in education and job creation.
The myths have now been exposed: the estate tax hasn’t put family farms out of existence, nor destroyed family businesses. At current levels, the tax is paid exclusively by the heirs of multimillionaires and billionaires. It affects only one in every 500 estates across the country.
A prudent estate tax policy won’t happen unless we change our attitude about taxing inheritances. No one accumulates a fortune without the help of our society’s investments. The moral justification for an estate tax is that some of us have disproportionately benefited from the fertile economic soil we have cultivated together.
How many billionaires land on the Forbes 400 list courtesy of our technological and scientific commons, including the Internet, airwaves, biotechnology, and mechanical advances? How much wealth would exist without America’s unique property rights protections, public infrastructure, and academic institutions?
The estate tax should be celebrated as an “economic opportunity recycling” program. A progressive estate tax serves as an intergenerational pact between the wealthy at the end of their lives and the next generation, who may not be born wealthy. Previous generations made investments for us and it is our turn to pass on the gift.
Bill Gates Sr., father of Microsoft founder Bill Gates, is a retired Seattle attorney and author of “Showing Up for Life.” Chuck Collins is co-founder of Wealth for the Common Good:
They are co-authors of “Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes” (Beacon Press).