Befuddled Billionaires
Why George Soros wants you to pay more taxes.

Mr. Moore is president of the Club for Growth
February 20, 2001 12:25 p.m.

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 Estate-tax advocates in Washington are exulting in the fact that even the nation's yacht owners don't want this tax repealed.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 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.