Federal Inheritance Tax
Never doubt the importance of language in politics.
In labeling as “death taxes” what should properly be understood as an Equality and Fairness Fee or an Anti-Dynasty Tax, corporate-funded think tanks and their Congressional allies have launched a retrograde initiative to repeal the federal inheritance tax.
Earlier this month, the House of Representatives succumbed to the pressures of the corporate lobby, and passed legislation to eliminate inheritance taxes by a deplorable 279 to 136 margin. The Senate is expected to take up the matter soon. President Clinton has, properly, promised to veto such legislation. But even if Clinton stands by his veto threat, the gathering momentum behind the call for elimination means expressed citizen outrage will be necessary to stop it from becoming law in the years ahead.
The logic of the inheritance tax is unassailable and deeply rooted in American history. As Citizens for Tax Justice points out, it “helps reduce concentrations of power and promote equality of economic opportunity — to ‘break up the swollen fortunes of the rich,’ as Congress put it back in 1916 when the estate tax was first adopted.”
The past two decades have seen a startling concentration of wealth in this country (and worldwide). To take one of the many staggering illustrations of the wealth accumulation at the top of the hierarchy, the wealth of the 400 richest U.S. families grew by an average of $940 million each between 1997 and 1999 — an average increase in wealth of $1,287,671 per day.
The role of the inheritance tax is to counterbalance, modestly, the ability of the very rich and superrich to create family dynasties in which family members by virtue of birth and birth alone have insuperable economic advantages over the rest of society. We live, or should live, in land of equal opportunity, not a feudal regime in which life position is etermined by hereditary birth.
Of course the inheritance tax only achieves this aim in small part, and is only one small part of the policy package needed as we strive to realize our democratic and galitarian ambitions, but it is an important and necessary measure.
In practice, as is true with many taxes, there are escapes that enable the rich to avoid paying all or even most that they should — but that is a reason to fix it, not bolish it. The tax does successfully raise $27 billion a year.
And it is the most progressive of taxes. Estates under $675,000 (soon to rise to $1 million) — and effectively double that amount for spouses — are exempt from the tax. The tax is collected only from the richest 1.4 percent — and two thirds of the inheritance tax revenues comes from the wealthiest .2 percent.
It is the very success and underlying logic of the inheritance tax that makes it such a concern for the corporate lobby. They want to preserve privilege, defend the concentration of wealth and delegitimize the government’s role in promoting equality.
But no one wants to say that.
So the Heritage Foundation, the Cato Institute, Americans for Tax Reform and other corporate-backed organizations spin fanciful tales of the immense burdens imposed by the inheritance tax on family-owned businesses and farmers.
Robert McIntyre’s Citizens for Tax Justice (CTJ), one of the fewreliable source for credible information on tax policy, makes short shrift of these arguments.
“The truth is that less than one in 20 farmers leaves a taxable estate,” CTJ notes. “Even for the small number of farm estates that do pay any tax, the typical tax payment is only about the $5,000. Only 0.5 percent of total estate taxes is attributable to farm assets. Non-farm family businesses are also only a small part of the estate tax.”
The story is similar for small businesses, CTJ explains. “Non-farm family businesses are also a small part of the estate tax — less than 3 percent of total assets for estates worth less than $2.5 million. Only for the very largest estates does business share of total assets become significant — and these businesses are hardly small.” Moreover, the tax code already includes special breaks to keep family businesses going, including rules to permit family businesses to value assets at less than
market value and to spread inheritance tax payments out over a long period of time.
Whether or not the progressive estate tax will remain in the tax code has virtually nothing to do with the viability of small businesses and family farmers. What is at stake are fundamental American norms of fairness and equality, and whether we as a society will continue to use one of our most direct and effective — if all-too-modest — tools to put a brake on the hyper-concentration of riches. Democracy or avaricious plutocracy, that is the question.
To get the real story on tax issues, contact Citizens for Tax Justice, 1311 L Street NW, Washington, DC 20005, <www.ctj.org>.