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Published on Friday, February 16, 2001 in the New York Times
Defending the Estate Tax
A New York Times Editorial
From the time that opponents started calling it the "death tax," momentum has been building in Congress to get rid of the federal tax on estates. Vetoed by President Clinton last year, the estate tax repeal is now a central element of President Bush's $1.6 trillion tax-cut package. Lately, however, Congress has begun entertaining second thoughts, and for good reason. Some of the strongest arguments against repeal are coming from a group of 120 wealthy Americans, including Warren Buffett, George Soros and William Gates Sr., the father of the founder of Microsoft. Their words are worth listening to as Congress takes on the entire tax-cut package.
In a petition and in interviews, the wealthy opponents of abolishing the estate tax directly rebut the argument of President Bush and others that the tax somehow dampens the incentive of rich Americans to make money. On the contrary, Messrs. Buffett, Soros and Gates argue that cementing an aristocracy of wealth would sap the morale of an egalitarian society, and would misdirect the nation's resources by rewarding heredity rather than merit. In Mr. Buffett's colorful analogy, repealing the estate tax for the benefit of heirs of the rich would be like choosing the nation's Olympic team from among the children of past Olympic champions. The offspring in each case are not necessarily the best of their generation.
The wealthy dissenters, many of whom are leading philanthropists, also know that eliminating the estate tax could dry up bequests to charitable, philanthropic and educational organizations. That would be an enormous civic loss, sapping the vitality of institutions that are critically important to the nation and to cultural centers such as New York. Last year Treasury Secretary Lawrence Summers estimated that the loss in contributions could reach $6 billion a year. Strangely, the administration challenges the view, widely held by lawyers and accountants involved in estate planning, that wealthy individuals make charitable contributions to reduce the size of their taxable estates and direct money to cherished causes and institutions rather than see the government take it. But only last week Mr. Bush's own director of Faith-Based and Community Initiatives, John DiIulio, told The Times that repeal of the tax would undercut the president's efforts to support private charity. "I don't want to be the skunk at the picnic," he said. "But no, I don't think the estate tax should be eliminated modified, maybe, but not eliminated."
Another factor is making Congress look again at the estate tax repeal: its tremendous cost and the way it skews the entire tax-cut package put forward by Mr. Bush heavily toward the wealthy. Mr. Bush's proposal would repeal the estate tax over 10 years. But in the tenth year the repeal would account for nearly 25 percent of the lost revenue of the entire tax-cut package. Repeal of the estate tax would cost less than $250 million over the first 10 years of Mr. Bush's plan. But in the following decade, when it is fully phased in, repeal would cost the federal government an astronomical $750 billion.
Repealing the estate tax makes no economic sense under the central rationale being pressed by Mr. Bush and his administration colleagues to justify the overall tax cut. This week Treasury Secretary Paul O'Neill once again argued on Capitol Hill that the entire tax cut was needed to stimulate the economy. But the slow phase-in of the estate tax repeal would not quickly inject much spending money into the economy to turn it around. Any way you look at it, repealing the estate tax cannot be justified by economic conditions, social benefits or the need for basic fairness in the tax code.
Copyright 2001 The New York Times Company
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