- The Washington Times - Saturday, March 10, 2001

The Democrats opposing President Bush's tax plan can't really argue with critics of the estate tax, who say it is economically inefficient, morally dubious, puny as a source of revenue and easily evaded. Their response is: We can't repeal it, because in this case, eliminating all those flaws would have the unconscionable effect of forgive my language helping the rich. And nothing could be more unfair than that.

Before vetoing a repeal of the estate tax last year, President Clinton said it was just one of several Republican "tax breaks that will help only a few." (Mr. Clinton thinks government help to the wealthy few should take the form of presidential pardons.) Many Democrats relish noting that each year, only 2 percent of estates end up owing money to the Internal Revenue Service.

But Rep. Jack Quinn, New York Democrat, who voted last year to kill the death tax, says, "The litmus test for me is what it does for the blue-collar guy back in Buffalo." And surprise: The estate tax is no favor to the blue-collar guy. Opponents of repeal conclude that because the tax hurts the wealthy, it must help everyone else. In fact, it does little good for anyone, regardless of income.

Champions of the status quo say sacrificing the inheritance tax is the first step to bringing back ruinous deficits. Revenues last year totaled nearly $2 trillion, the surplus was about $167 billion, and the estate tax brought in only $29 billion. Even that tiny contribution, however, is mostly a hallucination.

Stanford economist B. Douglas Bernheim has argued that the estate tax may actually reduce federal revenue. How? Many of the strategies the elderly use to reduce the size of their estates also reduce their income taxes and the loss in income tax payments may cancel out the revenue from the estate tax. So we could repeal the tax and not notice any effect at all on the surplus.

The popularity of tax-avoidance measures explains why estate tax revenues have shrunken as a share of Washington's income while the amount of wealth has soared. One reason such a small share of estates pay the tax is that there are lots of ways to dodge it. Liberal economists Henry Aaron and Alicia Munnell say the escape routes are so numerous and wide it ends up not as a tax on the wealthy but on "those who neglect to plan ahead or who retain unskilled estate planners" a tax, that is, on rich people who are also stupid.

"Despite high, progressive rates, the effective rate of tax on transferred wealth was about 5 percent," they noted in a 1992 article and the deceased probably "could have avoided even this modest toll if they had taken the time to do so." Mr. Aaron and Ms. Munnell note regretfully that contrary to what you might conclude from listening to the pitchfork populists, the levy doesn't even reduce the amount of inequality in American society.

The estate tax generates a lot of pseudo-economic activity whose only purpose is to reduce the bill from Uncle Sam. The Wall Street Journal reports it "has spawned a huge industry, with insurance companies, seminar organizers, charities and book publishers all getting in on the action." Amazon.com carries 526 titles on the subject, most sharing the pithy theme of one volume: "Keep Every Last Dime."

The Journal estimates that if the tax is scrapped, life insurers may bid farewell to $1 billion in premiums every year. Lots of lawyers and financial planners will find themselves with smaller estates if they can no longer get rich helping people avoid the estate tax.

Of course, the simplest possible way to stiff the IRS is just to lavish money on cars, clothing, fine wines, travel, and restaurant meals. The estate tax holds no terror for the spendthrift rich. It's only wealthy people who live far below their means, thoughtfully accumulating assets for the benefit of their loved ones, who have to worry.

Supporters of the estate tax are mystified that a levy affecting only millionaires is so broadly unpopular. Maybe it's because the blue-collar guy back in Buffalo doesn't see why the government should punish people who want to help their children and grandchildren. Or maybe he grasps that the tax takes a second bite from money that has been taxed already. Or maybe he sees that it's too full of holes to be worthwhile.

Critics of repeal say fairness demands keeping a tax that is notable mainly for its futility and malignant effects. But if the estate tax is fair, what would be foul?

Steve Chapman is a nationally syndicated columnist.

Sign up for Daily Newsletters

Manage Newsletters

Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

Please read our comment policy before commenting.


Click to Read More and View Comments

Click to Hide