Death and Tax Cuts - (*your friggin' Gates proof too)
We should help all Americans build estates, not just enrich the few who already have them.
by Bruce Reed
If anyone ought to welcome President Bush's bid to eliminate the estate and gift tax, Warren Buffett should. According to Forbes magazine, Buffett is worth $28 billion. Repealing the estate tax could save his heirs as much as $15 billion - enough money for one family to buy most of the family farms in Buffett's home state of Nebraska.
But like many of his fellow zillionaires - including William Gates Sr., George Soros, and David Rockefeller - Warren Buffett doesn't want any part of the Bush estate tax plan. He told The New York Times that repealing the estate tax would be the moral equivalent of "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics." That's not the American way, Buffett said, because it "means you pass down the ability to command the resources of the nation based on heredity rather than merit."
It's hard to tell which is worse for George W. Bush: a coalition of billionaires opposing his tax cut or a rigorous debate about whether success in America is based on inheritance or merit.
In fact, estate tax repeal exposes all the dirty little secrets of Bushonomics. Like the broader Bush tax plan, outright repeal costs too much, helps too few, does nothing for the economy right now, and could do real damage over the long haul. According to the bipartisan Joint Committee on Taxation, estate and gift tax repeal costs a fortune - $662 billion - over the next 10 years. And who gets to be a trillionaire? Ninety percent of the windfall goes to about 2,400 families a year with estates worth more than $5 million. Now we know why Bush campaigned against Al Gore's targeted tax cuts: They would help too many people.
The estate tax proposal is the most damning proof that no matter what he says about it now, Bush's goal when he proposed his tax plan wasn't to get the economy going again. It was to get conservatives voting again. Not even the most ardent opponents of "the death tax," as conservatives like to call the estate tax, are willing to make a supply-side argument that the key to economic growth is freeing octogenarian tycoons to pass on their full fortunes to a new generation of plutocrats. Of course, they could just be saving Anna Nicole Smith for next year's State of the Union address.
Here's another dirty secret: The Bush tax plan includes a welcome provision, similar to one President Clinton proposed, to let the vast majority of Americans who don't itemize their taxes deduct charitable contributions the way affluent itemizers already do. But repeal of the estate tax would have such a devastating impact on charitable giving that Bush's own adviser on faith-based initiatives, John DiIulio, spoke out against it. In other words, Bush's tax plan challenges middle-class Americans to give to charity and tells rich estates they no longer have to.
The shame in this whole tax cut debate is that if Bush weren't so intent on inverse utilitarianism - ensuring the greatest benefit to the smallest number - he could provide broad relief to those who actually need it without squandering the surplus to help those who don't. For example, Democrats have offered a sensible plan that immediately increases the estate tax exclusion to $4 million per married couple ($2 million per individual) and ups that to $5 million per couple over time. The Democratic plan would repeal the estate tax for three-quarters of those currently liable, leaving less than 1 percent of estates affected by the tax.
Because it exempts most farmers and small businesses instead of multimillionaires, the Democratic alternative costs $40 billion over 10 years. That's about $620 billion less than the cost of repeal, a savings of well over $1 trillion dollars over the next two decades.
So all sides could easily find common ground by agreeing to raise the exemption to protect family farms and small businesses and to use the extra money for something else. But if the president insists on repealing the estate tax altogether, he will be saying that the highest national purpose America can find for more than $1 trillion is to let a few thousand families a year give their children bigger trust funds.
The most prudent use for that money is to set it aside to strengthen Social Security and Medicare, which will be running short of cash about the same time the true costs of estate tax repeal start exploding. As more than 100 megamillionaires, led by William Gates Sr., pointed out in their ad campaign against repeal, that lost revenue will be made up either by increasing taxes on those less able to pay or by cutting Social Security and Medicare.
In fact, if conservatives really want to eliminate the estate tax, they should take the long view. Today, estate planning is the exclusive province of the very rich. If we helped all Americans save enough to build estates, the estate tax would be repealed in no time.
One way to do that is through retirement savings plans. If Congress wants to put some money into a tax cut that helps families pass more on to their children, it should pass tax credits for retirement savings so more Americans can build estates in the first place. That would do far more for the economy in the long run than the Bush tax cut, which comes at the expense of eliminating the national debt and raising private savings. Tax credits for retirement savings are also a far better way to honor the basic value that estate tax opponents purport to share: rewarding parents who work and sacrifice so their children will be better off.
Congress has plenty of good savings plans to choose from. Both Al Gore and the Clinton-Gore administration proposed refundable tax credits to create Retirement Savings Accounts, which would match taxpayer savings and provide a higher match for lower-income workers. Bush's only hope for bipartisan Social Security reform is to adopt some form of supplemental retirement accounts that are above and beyond Americans' Social Security checks, not simply carved out of them. Ironically, a big tax cut designed to stop Congress from spending is far more likely to stop the president from reforming Social Security and Medicare, because there won't be enough money left to do so in a politically acceptable way.
But the greatest irony of the estate tax debate is that Warren Buffett, George Soros, and William Gates Sr. understand the American dream so much better than the man who thinks they need a big tax cut to achieve it. Even the wealthiest Americans don't want a Gary Sheffield tax plan that says take care of the top first and worry about the rest of the team later. |
