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 ust
because someone is really, really wealthy, doesn't mean that he
is blessed with common sense. Earlier this week
a handful of the richest people on the planet, including George
Soros, Warren Buffett, and Paul Newman urged Congress not
to eliminate the death tax. More than 100 other rich people took
out an ad this weekend in the New York Times, essentially
saying "Please tax us!" Estate-tax advocates in Washington are exulting
in the fact that even the nation's yacht owners don't want this
tax repealed.
The truth is that these fabulously wealthy Americans aren't being
nearly as selfless as it may seem. Most billionaire families around
today have long ago engaged in careful estate-tax planning-by, for
example, depositing their fortunes into family foundations, or by
creating generation-skipping trusts — to escape ever having
to endure the long arm of the IRS beyond the grave.
Let's take the example of Mr. Soros. According to research by Brett
Fromson of TheStreet.com, there are very few Americans who have
been so successful at gaming our tax system as the billionaire financier.
Many of Soros' investments are "off-shore" hedge funds that are
often exempt from U.S. taxation. "Soros can afford to support high-inheritance
taxes," writes Mr. Fromson, "given the enormous personal income
tax advantage he enjoys."
Now I personally have no objection to Americans engaging in legal
tax avoidance. It's smart personal finance. But Soros shouldn't
turn around and urge other folks to pay more taxes, when he personally
finds so many clever ways to beat the IRS.
The dirty little secret of the death tax is that the people who
are clobbered by this tax are not billionaires. Typically they are
ordinary Americans with medium-sized estates-the millionaire next
door. I am talking about ranchers, farmers, and self-starter businessmen
and women. They are the risk-takers in our society who have spent
a lifetime pouring sweat equity into their family-owned firms. They
grow anguished and enraged when they discover that their reward
for a life of virtue is a confiscatory death tax.
Every year there are thousands of heirs who are forced to literally
sell the family farm or business just to pay off their
| “The
people who are clobbered by this tax are not billionaires.
Typically they are ordinary Americans.” |
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estate
taxes. It's particularly unjust given that this tax is imposed on
dollars that were already taxed during the deceased's lifetime (i.e.,
when the income was earned).
Now Mr. Buffett worries that without a death tax America will become
a society of pampered third- and fourth-generation inheritors hoarding
their family fortunes without ever working for an honest day's wages
or contributing to society. (The image of Ted Kennedy may jump to
mind here.) But, as Professor Edward McCaffery of USC Law School
points out, "If breaking up large concentrations of wealth is the
intention of the death tax, then it is a miserable failure." N.B.:
The Kennedys and Rockefellers enjoy massive family fortunes despite
the estate tax.
The death tax rewards the very life of lavish, unproductive consumption
it is intended to discourage. This tax essentially says to the elderly:
'Live high on the hog; Wrap yourself in every material comfort;
Eat, drink, be merry.' You can't take it with you, and you can't
leave most of it to your kids. So your goal is to die broke —
the ultimate form of tax avoidance. Meanwhile, the frugal men and
women who scrimp and save and selflessly amass a legacy to leave
to their children, gets clobbered by a death tax that allows the
IRS to pilfer more than half of their life's earnings. Through the
death tax, we reward vice and punish virtue. Just where is the tax
fairness in that, Mr. Soros? Mr. Buffett? Mr. Gephardt?
One riposte from the billionaires is that if we were to get rid
of the death tax, it would destroy private charities. But there
is ample evidence showing that charitable giving is far more influenced
by the degree of economic growth than the value of charitable tax
deductions. In the 1980s, the value of charitable deductions fell
by almost half, but charitable giving soared. It's insulting to
say that Americans give to their churches or the Red Cross or the
Salvation Army because they want a tax break. True, without the
death tax, there would be fewer Ford and Rockefeller Foundations,
but given how these Foundations have misspent monies in recent decades,
that may not be such a bad thing.
George W. Bush is right to demand the end to the death tax. We consider
ourselves to be the freest nation on earth, but we currently have
the second-highest death tax in the industrialized world. Many nations
that lean closer to socialism than our own, such as France and Sweden,
impose much lower estate taxes than we do. What's more, this confiscatory
tax collects a meager 1.5% of total revenues.
Some studies have predicted that we would get more tax money, not
less, if we abolished the tax. George Mason University economist
Richard Wagner, an expert on federal tax policy, has come to precisely
this conclusion. He says that because the death tax channels billions
of dollars of capital into economically-unproductive and complicated
tax-shelter schemes, the tax actually reduces economic growth and
thus costs the economy jobs and tax revenues. The death tax, of
course, is not bad news for every industry: There are thousands
of tax lawyers and crafty accountants whose livelihoods depend on
preserving this tax.
I find myself in the unusual situation of siding with Hillary Clinton,
not George Soros, in this debate. Last fall, while campaigning for
the Senate in New York, Mrs. Clinton said: "You ought to be able
to leave your land and the bulk of your fortunes to your children
and not the government." Fortunately, three out of four Americans
agree with her.
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