Wealth for the Common Good

Published on 28 June 2010. Linked from The Nation.

By Chuck Collins

A century ago this summer, Theodore Roosevelt gave his remarkable “New Nationalism” speech about the dangers of concentrated wealth and corporate power. After witnessing a decade of financial corruption and corporate malfeasance, Roosevelt called on the nation to “effectively control the mighty commercial forces which they have themselves called into being.”

Part of his vision was a “graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate.” Congress instituted an estate tax in 1916 that was in place until last January. For most of the last century, the estate tax was a single tax rate. A person with $5 million was taxed at the same rate as someone with $5 billion.

A century later, a group of Senate progressives have heeded Roosevelt’s call. On June 24, four US senators introduced the “Responsible Estate Tax Act,” which includes a graduated rate structure that taxes billionaires at rates significantly higher than it does multimillionaires. Preliminary estimates indicate the proposed tax would generate $319.2 billion over the next decade.

Led by Senator Bernard Sanders and joined by senators Sheldon Whitehouse, Tom Harkin and Sherrod Brown, the proposed estate tax reform would close loopholes, encourage conservation easements and exclude from the tax the minuscule number of small businesses that would otherwise be subject to the tax. This estate tax rate would range from 45 percent on estates under $10 million to a 65 percent “billionaire surcharge” on estates over $500 million ($1 billion for a couple).

The timing is great, because the Senate may deliberate the future of the estate tax in July.

Due to Senate inaction last fall, the estate tax expired last January 1. The absence of an estate tax for 2010 will cost an estimated $14.8 billion this year. Already, one Texas oilman, Dan Duncan, became the first billionaire in US history to die without any estate tax in place. Duncan was worth $9 billion and would have paid an estimated $4 billion in estate taxes.

Progressives in Congress are in an advantageous position to press for a good reform. If Congress takes no action, the estate tax law sunsets on January 1, 2011, and reverts to its year 2000 levels—with a wealth exemption of $1 million and a 55 percent rate.

Unfortunately, Senate Democratic leaders are like poker players with three aces in their hands but who are considering folding. They don’t view their leverage as an opportunity to press for a bold and creative reform. Instead, they are leaving the estate tax redesign to senators Blanche Lincoln and Max Baucus, politicians committed to weakening the law.

We need a mighty mobilization to pressure the Senate to take up the Responsible Estate Tax Act. Fair tax advocates are mobilizing, including Wealth for the Common Good, a network of business leaders and wealthy investors. They are backing the legislation and have compiled fact sheets and other resources.

Theodore Roosevelt had nothing against the wealthy. “We grudge no man a fortune,” he said, “which represents his own power and sagacity, when exercised with entire regard to the welfare of his fellows.”

But Roosevelt understood that concentrations of wealth undercut the common good—and threatened democratic institutions. “The really big fortune, the swollen fortune,” Roosevelt intoned in his “New Nationalism” speech, “by the mere fact of its size acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means.”

A century later, as we live through our Second Gilded Age, we must rally for a progressive estate tax as a way to raise urgently needed revenue, create real jobs and thwart plutocracy.

Published 13 June 2010. Linked from nytimes.com.

By David Kocieniewski

When Congress passed a law that eliminated the estate tax for people who die this calendar year — with plans to bring it back with a vengeance in 2011 — the joke among estate planners was that 2010 might go down as the year of
“Throw Momma From the Train.”

The estate tax is one of those hyper-combustible issues where emotion, and shrewd lobbying, can loose an outsize uproar. That point was made last week with news that the multibillion-dollar fortune of a Texas oil tycoon, who died this year, would pass to his children and grandchildren free of the federal estate tax.

But before railing against the wealthy — or encouraging your rich relatives to take up cliff diving — it might be wise to look at what the real-world effects might be next year, when the estate tax of up to 55 percent might be levied on any estate worth more than $1 million.

At first blush, that policy sounds destined to take big chunks out of estates across a broad swath of the population. While supporters say the estate tax affects only the richest members of society and helps counteract the concentration of wealth, that million-dollar limit would seem to ensnare many people who consider themselves decidedly middle class — especially in the Northeast and California where home values are high.

What is the dividing line between wealthy and upper middle class? Or between someone who owns an estate and someone lucky enough to have bought a home decades ago and watched its value grow to seven figures?

According to the Tax Policy Center, a research group, unless Congress revises the law by Jan. 1, the number of estates affected in 2011 would increase to 44,200 next year from 5,500 in 2009.

Even so, that figure represents less than 2 percent of the 2.5 million Americans expected to die next year, and is far below historical levels. In 1976, 139,000 estates representing 7.6 percent of all deaths were taxed when the exemption was set at $60,000 (nearly $230,000 in buying power today).

And these figures also don’t take into account the world of estate planning, where numbers can be fungible. With a bit of planning, tax lawyers say, most families can legally shelter significant portions of their estates. In addition, the law contains provisions that allow owners of small businesses and farms to take additional exemptions.

Such caveats offer little comfort to those who call the tax the “death tax” and have fought for repeal, saying it is a form of double taxation.

“The proper exemption should be everything,” said Dick Patten of the American Family Business Institute, a lobbying group that says the estate tax stifles job creation. “These people have already paid a lifetime of taxes to build the businesses they own.” (Estate tax supporters say the levy helps the government capture a portion of capital gains that have never been taxed at all.)

But with the federal deficit soaring and Democrats in control of Congress, even the most ardent advocates of repeal have resigned themselves to trying to limit the estate tax this year rather than eliminate it. Last Thursday, Senator Jon Kyl, Republican of Arizona, said he was close to a deal that would raise the exemption to $5 million and lower the rate to 35 percent. President Obama has said he favors restoring the 2009 levels of $3.5 million for individuals and $7 million for couples, but it is unclear what, if any, changes might make it through Congress by year’s end.

The lurching debate in many ways reflects the country’s historical ambivalence about the issue. For most of American history, inheritance taxes were imposed on the wealthiest citizens only as a temporary measure in times of war. By the early 20th century, as the Industrial Revolution led to a growing gap between rich and poor, leading figures like President Theodore Roosevelt and the steel baron and philanthropist Andrew Carnegie began promoting estate taxes as a way to diffuse a concentration of wealth that they considered a threat to democracy.

While much of the anti-estate-tax movement has been financed by a handful of wealthy families, there are also billionaires who have spoken out in favor of the tax, most notably Bill Gates and Warren Buffett. Mr. Buffett warned Congress in 2007 that without an estate tax, the United States runs the risk of becoming a “dynastic plutocracy.”

But where does that dynastic plutocracy begin? There is an astronomical gap between Mr. Buffett’s fortune, which Forbes estimated at $47 billion, and two retirees in Marin County, California, whose life’s work might have allowed them to leave their heirs $3.5 million in assets, mostly in the value of a house.

Even some strong supporters of an estate tax would say that the couple in Marin is not wealthy, and support the 2009 exemption of $7 million for couples, saying that it offers a dividing line between the upper middle class and the wealthy. And then there are those who would say that at least relative to the rest of the population, that couple is rich. “If a couple has $7 million to leave to their three children, their kids could conceivably never have to work again,” said Chuck Collins, co-founder of Wealth for the Common Good. “I don’t think most people would consider that middle class. Or think that creating a generation of dilettantes is a good thing.”