This Week: The "Death Tax" Debate
Hosted by Bob Thompson
Washington Post Staff Writer
Monday, April 14, 2003; 10 a.m. ET
Why is Bill Gates Sr. trying to make other really rich people so uncomfortable? And what does his opponents' well-heeled campaign to eliminate the estate tax say about democracy, power and economic fairness in America?
Bob Thompson, whose article "Sharing the Wealth?" appeared in Sunday's Washington Post Magazine, was online Monday, April 14 at 10 a.m. ET, to field questions and comments about the article.
Thompson is a Magazine staff writer.
A transcript follows.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
Bob Thompson: Good morning, and welcome to the chat. I'm impressed that anyone wants to talk taxes at this hour of the morning, but I see we've got a couple of questions, so I'll go ahead.
Silver Spring, Md.: Isn't the death tax a punitive measure that addresses a volume of wealth rather than the method of its accumulation?
Would not a more just tax and regulatory structure take the following into account?
1. Real enforcement of the nation's antitrust laws -- and real breakups of monopolies.
2. Measures to prevent the exploitation of poor workers both in the USA and in developing countries.
3. Top-to-bottom reform of corporate governance.
Bob Thompson: Good question, Silver Spring, though I think the word "punitive" is a bit misleading as to the tax's intent. But the larger question you raise, if I'm interpreting it right, is: Why bother with the estate tax when there are other, more important things that could be done to address the wealth gap?
Here's the problem, though. When you say "Would not a more just tax and regulatory structure take the following into account," you may be absolutely right in theory. But as a practical matter, "top-to-bottom reform of corporate governance," to take just one of your three points, seems unlikely to happen in the near future. So the question then becomes: Should the estate tax be eliminated in advance of the total reform you're talking about?
The anti-estate-tax arguments of Ed McCaffery, which I cite fairly far down in the story, seems to me to raise a similar question. McCaffery is proposing a total rehab of the tax system which, whatever you think of it, is not likely to happen right away.
Harrisburg, Pa.: Please forgive my mixing issues in this question, as I do believe it is possible for Congress to address separate issues, yet: when there are steelworkers who spent their lives paying into pensions and then retire to find their pensions have been reduced and Congress can't do anything to help, how could these same members of Congress then turn around and try to give tax breaks to the wealthiest Americans? Isn't this a further indication of the adverse affects of campaign contributions and lobbyist, where the rich and powerful have advantages in this Congressional playing field?
Bob Thompson: Defenders of the estate tax would say you're not mixing issues at all, I think, and they would agree with your views about the effect of money on politics. One point that I hope comes through in the story, however, is that it's not JUST money that made the estate tax repeal movement successful: There was a lot of hard work and smart strategizing involved as well.
Washington, D.C.: How wide a discrepancy is there between what Bill Gates wants for the estate tax and what others want?
Bob Thompson: Depends what you mean by "others." Between Gates and the repeal absolutists, there's a huge and essentially unbridgeable gap. But one of the strange things about the debate is the willingness of those on Gates's side to accept really large exemptions to the tax. (Gates himself says $3.5 million for individuals or $7 million for couples seems fair.) As Sen. Packwood said to me, if someone had told him ten years ago that Democrats in Congress would be willing to compromise by supporting exemptions on that level, he'd have said he was dreaming.
I'm not sure I've answered your question too clearly, but what I'm trying to say is that, for anyone not committed to an absolute repeal position, there's plenty of common ground.
Washington, D.C.: The right needs to stop spinning the estate tax by calling it the "death tax". A tax is owed only if someone's estate runs into the hundreds of thousands of dollars - mine certainly wouldn't at this point. Does the public actually believe this hype?
Bob Thompson: Well, as estate tax defenders freely admit, changing the name to the "death tax" was a brilliant rhetorical stroke that has the effect of making even those unlikely to ever pay the tax see it as unfair. As for whether public opinion has been swayed by this, the clear answer seems to be yes, though it's hard to know how much, because the polls that have been done vary widely depending on how the question is framed.
Harrisonburg, Va.: I was struck by the chairs and volunteers metaphor in the article "Sharing the Wealth." However, what struck me were the following two questions.
First, who decided that there are only 10 chairs? Compared to many nations of the world, or much of human history, we are a very rich nation. Why not 100 chairs? Okay, one person ends up with 70 chairs. But that leaves the other nine people with 30 chairs.
Second, let's accept the ten chairs/ten people for a moment. Why should our tax policy be oriented toward taking chairs away from Mr. Big Cigar? Why not help those nine people get their own chairs?
Bob Thompson: Well, you've hit on one of the major points in the dispute. Many anti-estate-tax advocates believe that the wealth gap -- meaning the growing divide between the wealth of the richest 10 percent, or five percent, or one percent of Americans and the rest of the American people -- doesn't matter, because Americans as a WHOLE are better off than most people in the world. Those on the other side worry that the increased ability of those at the top to push their own agendas will hurt the ability of those at the bottom to, as you put it, get their own chairs.
Washington, D.C.: Following up on the discrepancy between Gates and those supporting repeal. Hasn't Congress tried to increase the exemption and "carve out" family owned businesses in the past and failed to really achieve reform? You talk about that in your article. Also, increasing the exemption only works if you index it for inflation -- is Gates willing to do that?
Bob Thompson: Yes, Congress did increase the exemption, and it tried a family business "carveout" in 1997 that turned out not to work very well in practice (how and why is a complicated story). One way to read the history of the estate tax fight, in fact, is that those in favor of retaining it didn't take the opposition seriously enough until it was too late. Indexing for inflation is a relevant point here; in hindsight, if that had been combined with an increased exemption, the repeal movement might not have gotten the same traction it did. As for Gates, I can't remember for sure, but I believe he would be in favor of indexing for inflation.
Arlington, Va.: Wouldn't it make more sense to collect capital gains taxes once inherited assets are sold? Rather than forcing people to come up with the cash at the time of the death? That would eliminate the problem of family businesses being forced to sell at the time of death.
Bob Thompson: This is, in fact, what the estate tax repeal that passed in 2001 (and is scheduled to go into full effect in 20010)would do. It is also the position of people like Seattle Times publisher Frank Blethen, who is in favor of taxing capital gains when the assets are sold but not before, and it certainly solves the problem of forcing family businesses to liquidate -- indeed, it creates an incentive for them NOT to do so.
On the other hand: the capital gains rate is currently much lower than the estate tax rate, and it doesn't apply to the entire estate, so the revenue produced is much lower and the leveling effect (if that's what your goal is) is less as well. Furthermore, estate tax defenders argue that taxing capital gains on what's called a "carryover basis" is impractical because of the long-term record-keeping involved. And finally, the tax defenders point out, estates tied up in family businesses are a relatively small percentage of the total estates subject to tax, so it would be better to address their problems in ways that don't eliminate the tax as a whole.
Springfield, Va.: How is this debate taking into account individuals who have created "estates" but not in the same sense as those who have wealth in the millions and billions? For instance, an individual who has saved a bit out of each paycheck and in his retirement years has an estate that ranges from the half-million to some where in the 1 million dollar range?
Bob Thompson: At present, I believe, there's a $1 million exemption, so you're covered, Springfield -- and that exemption is scheduled to rise to $3.5 million before the tax is repealed entirely. Tax defenders, as previously noted, tend to be in favor of retaining exemptions at something close to this level. They argue that the repeal movement is driven not by the kind of people you're talking about, but by people whose estates are vastly larger.
Woodbridge Va: I've had an opportunity to view this debate from Congress (staffer)and it seems to divide on two very different world views of economics and government.
Pro tax (Estate or otherwise) - Wealth is evil and those who accumulate it do so at the expense of their fellowmen.
Anti tax - Wealth is virtuous and demonstrates positive contributions to mankind.
Pro tax - Few individuals, particularly the wealthy, are naturally altruistic. If not compelled through taxation or encouraged by targeted deductions, they will sit on their wealth and not share.
Anti tax - Most individuals, particularly the wealthy, are naturally altruistic. Left alone they will contribute large amounts of excess wealth where it will do the most good.
Pro tax - Government experts are best able to determine where resources should be allocated. Consequently resources should be gathered through taxation and allocated through grants.
Anti tax - Individual contributors are more capable of judging the merits of appeals for their money. They should be left to contribute to nonprofits or invest in job creating endeavors as they see fit.
These competing themes run through arguments on the estate tax, capital gains, tax rates etc.
Both arguments have their strengths and weaknesses. Two questions that move me toward the right are:
How many government social welfare programs could attract contributors if they were operated as private sector nonprofits?
If they could not attract support without the need for government funding, can we morally justify using the police/taxation powers of the state to compel unwilling contributors to anti-up?
Bob Thompson: You're absolutely right about the world-view divide, Woodbridge, though the somewhat loaded way you phrased them led me to guess which side you were on before you acknowledged it yourself.
Try rephrasing your final two questions by substituting government activities other than just "social welfare programs" -- funding for research, say, or the military, or education. You may still feel the same way, but you may also see some of what Gates is talking about.
Somewhere, USA: Norquist and the Anti-Tax Groups: An interesting article. I came to realize how seriously Grover Norquist and other anti-estate tax people wanted to win this when I interviewed someone at the Log Cabin Republicans, the gay Republicans group, who said Norquist had talked with leaders of that group to help push the point that estate taxes are especially harsh for same-sex couples who can't pass on estates to spouses tax-free. I realized it was not loner "ideological" in the traditional conservative sense if they were trying to get gays on board.
Bob Thompson: Interesting point. Pat Soldano commissioned some polling on this, I believe. But let me make a couple of points: First, it's true that gay couples are at a disadvantage under current law. Second, although you're right about the oddness of this alliance from the point of view of social conservatives, it's not inconsistent at all for Norquist, who is basically a libertarian on social issues.
Washington, D.C: With the budget problems facing my city they are considering taxing gym memberships, beer parking, house sales, everything under the sun.. Why not have an expanded death tax? Why would anyone prefer a gym tax and beer tax to a death tax that would most likely not harm them. Why do the middle and lower class people always look out for the rich?
Bob Thompson: You've gotten at basic question about progressive taxation, D.C. For some time now, the trend has been away from taxing those more well off and towards payroll taxes, sales taxes, and other taxes that hit the middle and lower class harder.
Gaithersburg, Md.: Most middle class and lower class people support doing away with estate tax. It seems to me that the idea of the American dream is still alive. Every day American's think that the estate tax could one day take away their hard earn morning. How many times does the government want to tax the same money? If Bill gates wants to give away his money then he is free to give it away but if some day I win the lottery (my only chance to be rich)I want to give to my children and only have it taxed two ok maybe three times.
Bob Thompson: Actually, I should have simply posted this comment in response to the previous question, because it goes a long way -- whether you agree with it or not -- towards explaining why defending the estate tax is a difficult task.
On the double taxation question, it's worth pointing out a couple of things. First, while it sounds nefarious and unjust, double taxation is a pervasive fact of American life (think sales taxes, real estate taxes, etc, which all come out of wealth that's already been taxed as income.) Second, as estate tax defenders point out, more than half of the wealth in estates over $5 million consists of previously untaxed capital gains.
Laurel, Md.: The problem with trying to create "more chairs" is that certain societal resources are inherently limited and increased wealth simply makes them more expensive.
The most obvious example is land. Of all the wealth created in the last 20 years, more than 100% of it went to people who own their homes. Renters have moved backward as the cost of their housing has eaten more than new earnings.
Bob Thompson: Thanks Laurel, that's a point worth thinking about.
Somewhere, USA: I don't get it. I thought the tax debate was supposed to help the working class folks but it seems like the rich have an unfair advantage. I think it would hurt me more to take a big percentage out of my low range 5 figure salary than a corporate head and celebrity who makes millions.
Bob Thompson: You've expressed the essence of the pro-estate tax viewpoint, Somewhere. If you were Grover Norquist, however, you'd argue that your taxes TOO should be lower, and we should make this possible by cutting spending.
Chantilly, Va.: Bob: Did you ask the anti-estate-tax folks to produce for you a family farm or small business that was sold BECAUSE of they estate tax?
They've never been able to do it. No such animal exists. Sorry you didn't push them on this.
Bob Thompson: It's true that the family farm/small business argument is greatly exaggerated, I think, and I should have mentioned that the New York Times once sent a reporter to Iowa to try to find a family farm that had been sold because of the estate tax and couldn't do it. That said, I think you've overstated the case. While there are plenty of other reasons family businesses break up, it seems clear that estate taxes can be a factor.
Woodbridge, Va: There used to be a bumper sticker that read:
"Wouldn't it be wonderful if education received all the funding it needed and the Air Force had to hold bake sales for bombers"
The flip side is:
"Wouldn't it be wonderful if donors voluntarily contributed to educations and only the military was reduced to depending on taxation.
Bob Thompson: I'm going to let this comment stand on its own. It's time for me to sign off, but I'd like to say thanks to you all for joining me -- and for sending in, to my surprise, more questions than I could answer in an hour. My apologies to those I didn't get to.
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