Keeping the Estate Tax

Buffalo News Editorial, 6/17/02

In killing a Republican drive to repeal inheritance taxes permanently, the Senate wisely chose not to pull the plug on a source of future revenue. This bid to void estate taxes also deserved to die.

Simply put, the world has changed since the temporary phase-out and eventual one-year repeal of estate taxes was passed early last year as part of President Bush's $1.35 trillion tax-cut package. Now, America confronts deficit spending and the costly demands of a war against terror. Last year's tax cut legislation calls for a gradual phase-out of inheritance taxes over the next decade, culminating in a one-year repeal in 2010. Like the rest of the taxes affected by the president's package, pre-2001 levels would resume in 2011. That's a bridge the government will have to cross, but not eight years before it comes to it.

In terms of revenues, phasing out the inheritance tax would cost the government $138 billion in lost revenues over 10 years. If repeal were to become permanent, though, the estimated loss over those 10 years would be $750 billion. There is no way, now, to guess what the government's spending needs will be if, as the Republicans especially keep warning, the fight against terror continues as a long-term struggle. But simple prudence would reject the notion of making such deep cuts in revenue now.

Nothing involving politics, though, is ever simple. Republicans, who pushed a permanent estate tax repeal through the House with substantial Democratic support before the measure failed in the Senate, lost the legislative battle but gained a campaign issue that should play especially strong in the Farm Belt, where the estate tax is viewed as a threat to the continuance of family farms.

But proper estate planning already provides ways around that problem, the existing law already provides higher exemption levels for family farms and businesses -- and, as a measure of political hypocrisy, senators rejected alternatives that either would have raised the basic exemption level to $3 million or offered special tax provisions for family-owned enterprises.

Perhaps more to the point, the American Farm Bureau Federation, one of the leading advocates for repeal of estate taxes, said it could not cite a single example of a farm lost because of estate taxes.

To put this in perspective, the federal estate tax applies now only to estates worth more than $1 million, with higher levels where family businesses are involved. Only about 2 percent of Americans would be subject to any estate taxes. In 1999, the last year with published figures, fewer than 50,000 estates paid taxes.

While agricultural and small business groups have pushed for permanent repeal, it's also worth noting that more than 120 of America's wealthiest citizens -- some of the very people Democrats charge the Republicans with favoring with an estate tax repeal -- rejected that effort in a petition that called on the government to instead spend the money where it's needed or at least cut taxes for the poor.

At the very least, the phase-out and temporary repeal that have been enacted will provide a proper measure of the impacts and affordability of such a tax cut. With the government now scraping to fund a military effort abroad and security enhancement efforts at home, now is not the time to make promises a future administration may not be able to keep.

Responsible Wealth, 37 Temple Place, 2nd Floor, Boston, MA 02111.
Voice: 617/423-2148 Fax: 617/423-0191.
© 2002 Responsible Wealth. All rights reserved.