SOCIAL TOPICS (Archive): EMERGING ISSUES

Published, March 2003

By Chuck Collins

Why does Bill Gates Sr. want his estate to be taxed?

For some, the estate tax is “un-American” and “unfair” for allegedly punishing people who, after a lifetime of hard work and paying taxes, aspire to pass something on to their children. Some have questioned the fairness of a tax that singles out less than 2 percent of wealthy households, and that will decline to roughly 6,000 households by the end of the decade. Some feel this is a form of discrimination or is rooted in a politics of resentment, or worse, “class warfare.”

For Bill Gates Sr. and other members of Responsible Wealth – a national network of businesspeople, investors and affluent Americans who are concerned about deepening economic inequality – the estate tax is the most fair tax we have. It generates substantial revenue from those most able to pay. Last year it generated $30 billion but its revenue-generating prowess will increase in the decades ahead as an estimated $41 trillion of wealth transfers from one generation to the next. In the next five decades, the estimates are that the estate tax will generate $150 billion to $700 billion per year.

At a time when our country is facing annual budget deficits of over $300 billion per year, it is fiscally reckless to eliminate this tax. Eliminating the estate tax as a source of revenue inevitably shifts the tax burden onto those less able to pay.

The estate tax is also an incentive for charitable giving, the lifeblood of our healthy civic institutions. The evidence suggests that without an estate tax, charitable giving will decline approximately $6 billion to $8 billion a year, with the largest decline coming from estates of more than $20 million.

The estate tax protects our democracy and equality of opportunity by thwarting the build-up of concentrations of wealth and power. U.S. Supreme Court Justice Louis Brandeis said, “We can have concentrated wealth in the hands of a few or we can have democracy, but we cannot have both.”

But at the core of the case for preserving the estate tax is an acknowledgement that none of us get to where we are alone. We live in an economy that has enabled a wide variety of people to attain wealth and comfort. And those who accumulate great wealth – $10 million, $20 million, $50 million and up – are families that have benefited disproportionately from the system of public investment that we together, as taxpayers and gift givers, have put in place in our society.

This is not to minimize an individual’s effort, the hard work, creativity and sacrifice that has enabled someone to accrue wealth. We should celebrate and reward these efforts. But we should not lose sight of a simple fact in this accounting. The United States has a remarkably fertile soil for the creation of wealth. It is part of the inheritance that many of us receive in the form of public investments that have been made over the centuries. We have a strong economy precisely because we have order, stability, a predictable system of rules for investing and mechanisms to resolve disputes. We have confidence that the rules today will be the same in a year and the year after. And we have a skilled workforce thanks to our substantial investment in public education and infrastructure.

We should strive toward a society where children are born without vast disparities in access to education, health care and opportunity. Unfortunately, we are moving in the opposite direction. London Observer columnist Will Hutton, a thoughtful commentator on the U.S., made a startling observation last year about the changing nature of American society. “The reality is that U.S. society is polarizing and its social arteries hardening,” lamented Hutton. “The sumptuousness and bleakness of the respective lifestyles of rich and poor represent a scale of difference in opportunity and wealth that is almost medieval and a standing offense to the American expectation that everyone has the opportunity for life, liberty and happiness.”

We must decide what kind of country we want to become. Do we want our children and grandchildren to grow up in a country with great extremes of wealth and poverty? Do we want to have our own hereditary aristocracy? Do we want to be a society that places more emphasis on preserving inherited wealth rather than strengthening equality of opportunity?

The estate tax should be reformed to raise exemptions and address the few situations when family farms and small businesses get tangled in the estate tax web. But complete repeal would undermine the level playing field that we are striving to create. The estate tax, much maligned, is actually a fair and fundamentally American tax with significant benefits, not least of which is the brake it applies to the build-up of American wealth dynasties and the dispersion of wealth it encourages.–C.Collins