- The Washington Times - Thursday, February 22, 2001

As Aesop told the story, an industrious ant works through the summer to build up stores for winter while a grasshopper fritters away his time and energy on matters of no consequence. In those pre-War on Poverty days, the grasshopper finds himself in terrible straits come winter. The moral of the story, obviously, is the importance of thrift, enterprise and patience.
Those virtues, however, do not always translate well to a new, improved modern world. Consider the fable of Jerry and Mary, as related by Steve Moore, president of the Washington-based Club for Growth. Each has cultivated a growing business worth about $10 million. Alas, Jerry decides to sell his business and to use the proceeds for high living eating, drinking and entertaining his way to poverty. He leaves his heirs not a penny.
Mary, on the other hand, pours her earnings right back into the business, which grows to a value of $20 million. At her death, she would like to leave the business to her children. She had after all already paid taxes on her earnings. Unfortunately, the government rewarded her diligence with a "death tax" of up to 55 percent on the portion of her business exceeding $675,000. Her heirs had to sell the business to raise the cash to pay the death tax. The moral of this story is the opposite of Aesop's: Better to spend the money as Jerry did than to save it as Mary did.
The question of the death tax's deadening effects on incentives to work, produce and invest has come to the political forefront. President Bush wants to repeal the tax, and there has been overwhelming, bipartisan support in Congress to do so. Meanwhile, the top slice of America's upper crust has come out in favor of retaining the tax, albeit with some modifications. Warren Buffett, George Soros, William Gates Sr. and assorted Rockefellers have written op-eds, paid for ads in the New York Times and made TV appearances on behalf of the cause of high death taxes.
Writing in The Washington Post, Mr. Gates, father of Microsoft founder Bill Gates, complained that "self-serving" opponents of the tax are out to confuse the public by suggesting that most Americans commonly pay the death tax. In fact, he wrote, only the top 2 percent of Americans pay it (about which more later). He expressed alarm that repealing the tax would leave government budgets facing shortfalls. Just as bad, it would discourage charitable giving for which the "rich" now receive tax breaks. (By this logic perhaps he would favor raising the death tax to 80 percent, 90 percent or even 100 percent. Think of the incentive to make charitable contributions then.)
The media have been quick to pick up this line of argument. The CBS Evening News carried a story on a New York soup kitchen where an Episcopal priest who else attacked Mr. Bush for pushing repeal of the death tax. Fearful it would lead to reduced charitable contributions, even as Mr. Bush argues for increased reliance on private agencies to provide succor for the poor, the priest took up the shopworn arms of class warfare. "This is crazy in my judgment, to think about eliminating that so that the most wealthy in our society can become still more wealthy," he said.
Never mind that charitable organizations predate the enactment of the death tax early in the last century. The premise of his argument is that the death tax is guaranteed to soak the rich. Not so. A vast industry has sprung up to advise the Gates, the Buffetts and Rockefellers on the many means to avoid the tax. And there are many.
One can provide annual gifts of up to $10,000 to family members, which isn't subject to the death tax. Better yet, those family members can turn around and buy life insurance for you that can pay millions of dollars to cover the cost of the tax. It's not a coincidence that a coalition of insurance underwriters and actuaries have just hired former Wyoming Sen. Alan Simpson, sometime Republican, to generate opposition from charitable and educational organizations to death tax repeal. "If there is no estate tax," Mr. Simpson told The Post, the kids are going to say, 'Dad, don't give the Picasso to the Met. I'd like to have the dough.'" In Mr. Simpson's circles, people have the luxury of worrying about what to do with the spare Picasso in the closet. Not the Marys of the world. They've got businesses to run.
Another tax avoidance scheme involves establishing a foundation to memorialize for all time one's good intentions and deeds, take a tax deduction for it, make the kids directors of the foundation and cover their expenses as they junket round the world to do the memorializing. One could also establish a limited family partnership with an undervalued asset, say farmland, then sell it for a much more valuable use, say development, and avoid the death tax.
The point is that there are plenty of ways to avoid the death tax, at least as long as you have the legal brain power and cash on hand to do so. The guess here is that Messrs. Gates, Rockefeller and Buffett won't have to pay a death tax. They are, in effect, being generous with other people's money. "People paying the estate tax are rarely the super rich," says David Fenstermaker, first vice president at Raymond James Associates. "The average person doesn't have the time or the money to avoid it."
Is this really the kind of message Washington wants to send to the nation's entrepreneurs? Better to send the one Aesop sent ages ago.
E-mail: ksmith@washingtontimes.com

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