By Chuck Collins & Sam Pizzigati

How can a civilized nation afford to hand the heirs of the super-rich billions of dollars tax-free and not afford to keep teachers in classrooms?

Dan Duncan died at the end of March. The Houston gas pipeline mogul left behind a spouse, four children, four grandkids, and a fortune worth $9 billion.

Duncan, a prominent philanthropist who supported cancer research and the Boy Scouts, left behind another distinction. He was the first American billionaire to ever leave his heirs a tax-free fortune.

America’s first-ever billionaire, John D. Rockefeller, died in 1937. His heirs faced a 70 percent estate tax on the bulk of his estate. Duncan’s heirs are enjoying a zero percent estate tax. When he died, his son and three daughters became instant billionaires.

If Duncan had died last year, his heirs would have had to share their new billions with the rest of America. But for the first time since 1916, no estate tax graces the tax code. That’s because it’s been suspended for the duration of this year, thanks to a 2001 Bush administration maneuver and an impasse in Congress.

Heirs to billion-dollar fortunes, if they sell the assets they inherit this year, will have to report whatever windfalls they rake in as taxable capital gains. But analysts don’t expect this new capital gains rule to raise nearly as much money as the estate tax would have.

How much will the absence of an estate tax this year cost the Treasury? It’s impossible to say. No one knows how many other billionaires may pass to the great beyond between now and New Year’s Eve. We do know that in 2008, the latest year with figures available, the federal government collected $25.7 billion in estate tax revenue.

That sum, by coincidence, would be enough to fully fund the $23 billion Rep. George Miller (D-CA) and Sen. Tom Harkin (D-IA) want Congress to appropriate to avert the nation’s worst teacher layoff crisis since the Great Depression. Without additional federal funding, our schools may lose 300,000 teachers, causing class sizes to balloon across the country.

But getting that help seems to be a long shot. The 2009 stimulus legislation saved tens of thousands of teacher jobs. But stimulus dollars are running out, and deficit hawks in Congress say we can’t afford more.

How can a civilized nation afford to hand the heirs of the super-rich billions of dollars tax-free and not afford to keep teachers in classrooms?

We can trace our current budget inanity back to when the Bush White House put on a full-court press to repeal the federal estate tax. The administration lacked the votes needed for a permanent repeal. However, it did manage to pass lower estate tax rates over the rest of the decade and a repeal in 2010. Under that legislation, the estate tax would reappear in 2011.

White House strategists never expected to see this reappearance. They counted on a future Congress to extend the repeal beyond this year. But by 2007, the GOP had become a minority in the House and Bush lost his shot at permanently scrapping the tax.

Meanwhile, estate tax supporters were confident the 2008 election results would make it possible to overturn the 2010 repeal. But in 2009, lawmakers deadlocked over many issues.
The year ended without any congressional estate tax action.

Apparently no one in Congress expected a billionaire of Dan Duncan’s magnitude to actually go and die without an estate tax on the books.

There’s hope that Congress will bring the estate tax back for the remainder of the year, and apply it retroactively. But with so much at stake, lawyers for Duncan’s heirs would likely battle that kind of action in the courts. The longer we go without the tax on the books, the higher the chances the courts will agree with them.

After his death, a close friend of Duncan’s noted “he really wanted to help everybody.” If Duncan’s heirs want to help everybody, they’ll troop over to Capitol Hill and demand the immediate reinstatement of a meaningful federal estate tax.

Chuck Collins directs the Institute for Policy Studies Program on Inequality and the Common Good. Sam Pizzigati edits Too Much, the Institute’s online weekly newsletter on excess and inequality. This column was distributed by OtherWords.

May we all thrive
by Libbey Goldberg

If all of us are to thrive in the United States, we need accountability and support from our public systems of education, health, and transportation —the very systems that we invest our hard-earned tax dollars in.

Unfortunately, the 2001 Bush-era tax cuts gave $700 billion in breaks over eight years to those with annual incomes more than $250,000. The government borrowed money to make these tax cuts possible.

These cuts are due to expire at the end of 2010, but Congress is considering a proposal that would extend them. I come from a family that will pay more if the cuts expire, and I’m urging our lawmakers and President Obama to allow let this happen. We can’t allow these irresponsible tax breaks for the wealthiest Americans continue.

If restored, these taxes could bring in an estimated $45 billion in annual revenue. That is money that could be far better spent on investments in our schools, infrastructure, research institutions and social services.

The story that I was told about how my family accumulated its wealth is a common one: “My grandfather grew up poor, the son of produce peddlers, Jewish refugees from Poland. He made his own fortune through sheer will, hard-work, shrewd business sense and intelligence.”

I know that this story is in large part true, but there are gaping holes. The truth is that my grandfather would never have achieved his success without the public education system, not to mention his white skin privilege, albeit Jewish. He would never have achieved this success without the community of Jewish professionals who had also depended on public infrastructure for their success. Attending the University of Texas opened all the doors to upward class mobility for my Papa Billy.

By allowing our public institutions to wither away without proper funding, we are closing the door for others to achieve success. The idea of the American Dream, pulling ourselves up by our bootstraps, is always an incomplete story.

Those of us who have disproportionately benefited from public institutions have a special responsibility to make sure that others can also benefit. Unless all of us are thriving, none of us is truly thriving. It is immoral and short sighted for wealthy families to evade paying their share of taxes so that their wealth accumulates more and more, being passed on through the generations. For this reason, I also urge Congress to restore the estate tax, which is suspended for the duration of this year, thanks to a 2001 Bush administration maneuver.

The wealth that I inherited is supposed to be “just for me,” according to my father. I see it differently. In order to take care of myself, I must also take care of my community. By investing in public institutions and community organizations, I am helping to create a society where everyone has enough, not just a select elite.

May we all thrive.

Libbey Goldberg is a chef and social justice activist living in Oakland, California

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.

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.

By Bill Gates Sr. and Chuck Collins

Senator Claire McCaskill (D-Mo.) was impressed.  “It was interesting to see someone who is such an aggressive capitalist, who believes so much in our capitalist system, saying we’ve got the scales way too heavily toward people who are very, very wealthy.”

Buffett repeated a point he made in October 2007 to Tom Brokaw on NBC News, that his effective tax rate is significantly less than his lower paid co-workers.

Buffett disclosed that he paid a 16.5 percent tax rate on all his income in 2008 because the tax rate on capital gains and dividends is 15 percent.  Meanwhile, a Berkshire Hathaway employee earning between $33,000 and $83,000 must pay a 25 percent federal income tax rate.

Wealth for the Common Good is researching a campaign for 2010 to eliminate the tax preference for capital gains and dividend income. Our proposal would be to tax all forms of income the same.  We’d love your perspective on this.  Should income from capital gains be treated differently?  If so, why?

Feel free to post your thoughts here, in our comments section. Or email Alison@wealthforcommongood.org.

House and Senate Approve Final Budget Resolution

The Tax Justice Digest
May 1, 2009 5:02 PM

Approval Marks a Major Step Towards Enacting President’s Agenda
On Wednesday, both the House and Senate approved a Congressional budget resolution for fiscal year 2010 that paves the way for several of the President’s major initiatives. The resolution allows Congress to make new investments in education and clean energy and puts in place procedures that will make it easier for Congress to enact comprehensive health care reform. It also allows Congress to extend the Bush tax cuts for all but the richest Americans.

The budget resolution allows for about $3.5 trillion in federal spending in fiscal year 2010 and includes important tax and spending provisions related to years after that. It is not a law and is not binding, but puts in place caps on the spending that Congress appropriates each year, sets targets for tax and spending changes and includes certain procedural changes that make it more likely Congress will meet these goals.

Tax Cuts Extended for All but the Rich
For example, the budget resolution allows Congress to reduce revenues by a certain amount by extending the Bush income tax cuts. It is understood that the amount of revenue-reduction allowed would be sufficient to extend the Bush tax cuts for those with incomes below $250,000. It also allows for Congress to reduce revenues by preventing the Alternative Minimum Tax (AMT) from expanding as it is scheduled to under current law. Similarly, it allows Congress to extend the estate tax rules in effect in 2009 instead of allowing the estate tax to revert to the rules put in place during the Clinton years, before Bush’s cuts in the estate tax were enacted.
The resolution allows for Congress to enact these tax cuts without finding new revenue to pay for them — on one condition, which is that Congress enacts a statutory pay-as-you-go (PAYGO) rule that will (in theory) prevent Congress from enacting any more legislation that will increase the deficit. That means that any additional tax cuts (say, an extension of the Making Work Pay Credit that was enacted for two years as part of the economic stimulus package) would have to be combined with revenue-raising provisions to offset the costs.

Predictably, allies of former President George W. Bush have expressed horror that Democratic leaders and President Obama wish to extend the Bush tax cuts for 97.5 percent of Americans rather than 100 percent. The Democrats and the President would allow the Bush tax cuts to expire for singles with incomes over $200,000 and married couples with incomes over $250,000 (which make up roughly the richest 2.5 percent of taxpayers).

For their part, House Republicans used the budget debate to demonstrate to the public just how lopsided the tax code would be if their goals were ever realized and just how much government would have to shrink because of the revenue losses that would result. Earlier this month, the ranking Republican on the House Budget Committee presented his tax and spending plan which would cut and privatize Medicare, convert Medicaid into limited block grants to states, repeal the recently enacted economic stimulus law and deeply cut the relatively small amount of government spending devoted to non-military, non-mandatory programs.

Citizens for Tax Justice published a report concluding that under this GOP plan, over a third of taxpayers, mostly low- and middle-income families, would pay more in taxes than they would under the House Democratic plan in 2010, while the richest one percent of taxpayers would pay $75,000 less, on average.

Final Budget Leaves Out the Senate’s Outrageous Estate Tax Cut
Progressives scored a victory when Democratic leaders agreed to exclude from the final budget an amendment adopted by the Senate during its budget debate on April 2 which would slash the estate tax to benefit multi-millionaires. Before the Senate approved this amendment, Majority Leader Harry Reid (D-NV) said, “It is so stunning, so outrageous that some would choose this hour of national crisis to push for an amendment to slash the estate tax for the super wealthy.” His common sense view carried the day as negotiators hammered out the final resolution.
The tax cuts enacted under President Bush in 2001 scheduled a gradual repeal of the estate tax, with the amount of assets exempted from the tax gradually increasing over a decade and the tax rate on estates gradually dropping until the estate tax would disappear entirely in 2010. Like almost all of the Bush tax cuts, this cut in the estate tax expires at the end of 2010, meaning that rules scheduled under President Clinton would come back into effect in 2011.

The budget resolutions passed out of the House and Senate budget committees in March both assumed that the estate tax rules in place in 2009 would be made permanent, meaning the Bush estate tax cut would be partially made permanent but the estate tax would not disappear entirely in 2010. The Center on Budget and Policy Priorities released a report finding that about 99.7 percent of estates would be untouched by the tax under this proposal.

Incredibly, 51 Senators voted in favor of the amendment offered by Senators Blanche Lincoln (D-AR) and Jon Kyl (R-AZ) to cut the estate tax even more than this. The 2009 estate tax rules exempt the first $7 million of assets passed on by a married couple (as well as assets they leave to charity) and tax the rest at a rate of 45 percent. The Kyl-Lincoln amendment called for a $10 million exemption for married couples and a 35 percent rate.

Taking Steps Towards Enacting the President’s Priorities
Progressives scored another victory in the area of health care. House and Senate leaders decided to include in the final budget resolution a mechanism known as “reconciliation” which will allow the Senate to enact health care reform and higher education loan changes with a simple majority vote.

The practice of filibustering legislation in the Senate has, over the years, turned into a default rule that three fifths the Senate’s members must agree to pass a bill. This means that legislation supported by Senators representing a majority of Americans is often blocked. Many advocates fear that this is exactly what could happen to health care reform and many other of the President’s important initiatives.

Reconciliation is a way around this obstacle. A budget resolution can include reconciliation instructions specifying that committees will pass legislation that can then pass the full House and Senate under a streamlined process. In the Senate, that streamlined process means that the bill can be passed with just 51 votes.

The particular version of reconciliation included in this budget is optional, meaning Democratic leaders will resort to using it only if bipartisan consensus proves elusive.
Several Republican Senators, and some Democratic Senators, have taken the view that majority rule is undemocratic, and have called reconciliation a partisan ploy to “ram through” the President’s agenda. (The idea of the Senate moving too quickly is a little hard for any Hill observer to understand.) More importantly, enacting health care reform will require Congress to raise a great deal of revenue, and finding a large bipartisan majority for that might be a challenge.

Finally, some have complained that reconciliation is only to be used for deficit-reduction, but this is entirely unconvincing because these are largely the same members who voted in favor of reconciliation bills during the Bush years that actually increased the deficit by cutting taxes.

Seattle Post Intelligencer – USA

April 22, 2009

Seattle Congressman Jim McDermott introduced an estate tax bill on Wednesday.

In a news release, his office said the Democrat introduced the Sensible Estate Tax Act and that it “would finally and fairly reform existing tax law that swings wildly between collecting no revenue to collecting billions from year to year, threatens tens of billions in existing revenue to the Treasury and affects only a fraction of 1 percent of the very wealthiest Americans.”

The Seattle Times, the largest newspaper in McDermott’s district, is a long-time opponent of the estate tax. We’ll to have to wait to see what Fairview Fanny thinks of McDermott’s idea.

But the congressman says, “Those Americans who have reaped huge fortunes as a result of their enterprise in America’s free-enterprise system owe their country something in return. This legislation provides for a modest and reasonable return on the investment America made in these people through the system we all work hard to support and advance.”

He said his bill (HR2023) would exclude the first $2 million for an individual and $4 million for a couple from the tax. Allow surviving spouses to get the full $2 million exclusion their dead spouse was entitled to. It would also use progressive tax rates.