Wednesday, April 20, 2005

Fight Over Death Tax

Amity Shlaes has a column in the Financial Times on the evolving debate over the death tax. Link.
The Democrat wants to preserve the estate tax, America's inheritance tax. The Republican wants to abolish it. [...]

Except that Schumer is thinking he might give in on rate cuts for the estate tax. What is more, he may permit exemption from the levy for estates worth less than $3 million— or even $5 million, even though such a change would leave fewer than half of 1 percent of all estates subject to the tax. Oh, and the timing of the legislation— there is room for concession there too. In other words, Schumer will defend the estate tax and may well prevent its abolition, but the result will still be a levy more diminished than even the fiercest Republicans could have hoped for 10 years ago. [...]

As recently as a decade ago, Democrats assumed the estate tax was here to stay. "An old tax is a good tax" runs the tax maxim, and the estate tax is old. The last leader to fight seriously for repeal was Andrew Mellon in the 1920s. As for Republicans, their most radical document, the 1994 "Contract with America," called not for repeal but a gentle increase in the exclusion from $650,000 to $750,000 or $850,000.

After that, however, Republican strategists and conservative talk-show hosts dropped the "estate tax" label and began referring to "the death tax." They started talking repeal and started talking reduction. William Beach of the free-market Heritage Foundation pulled out examples of families that had been forced to liquidate their businesses to pay the levy and pushed those families into the spotlight of congressional hearings. [...]

What is more, many Americans, including Democrats, dislike the estate tax. If you believe that you may become rich one day, you do not want to curtail your own opportunity to build inheritances. Even if that means allowing someone else to advance his horrid offspring ahead of the rest. Such a triumph of hope over envy is the popular recognition of the very real successes of the 1980s and 1990s. This is what Beach, Norquist and the others divined. So did television screenwriters, who made the point in a scene about the Congressional Black Caucus in the TV series "The West Wing":

Character A: "Can you think of any reason why they'd oppose the estate tax?"

Character B: "Sure. The first generation of black millionaires is about to die."

The "death tax" saga tells us something about other American projects, including the campaign to privatize Social Security. It is that it is too early to declare privatization of Social Security a failure.

If the Democrats' position is now to keep the death tax only on less than half of one percent of the population, they have lost the moral high ground. The moral high ground on taxes is that they are to raise revenues for government "services," not to punish people who elected officials do not like. The Constitution does not allow laws that would name certain individuals that the law would apply to, but, especially in doling out tax favors, Congressmen often write "neutral language" definitions that would restrict a tax break to one large donor to their campaign. It isn't any different when a tax law harms such a small number of citizens.


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