Hats off to TaxProf for quickly spotting the United for a Fair Economy (UFE) and Public Citizen release of a 57-page report "Spending Millions to Save Billions: The Campaign of the Super-Wealtny to Kill the Estate Tax" (April 2006).
When you consider the rapidity with which Congress passed its (temporary) repeal of the billionaire's estate tax and the view, that is treated as widely accepted, that the 2000 exemption amount of almost $700,000 was not sufficiently high and that we need an exemption amount of six, seven or even ten million dollars to satisfy the public, you have to think that something has gone awry in the dissemination of information about the estate tax. See my earlier post on the rhetoric of estate tax repeal, here (linking to a post on Prawfsblawg). Put succinctly, most taxpayers don't have the kind of estates that would be subject to tax under the old (lower) exemption level. Fewer still have estates subject to tax under the current (higher) $2,000,000 exemption level. The estate tax helps prevent the development of oligarchic families who do no work but control enormous (inherited) power. The estate tax helps create a level playing field for the many ordinary Americans who work hard all of their lives and barely have enough to support themselves in retirement. Taxation of a person's estate after death is the most painless way for tax to be exacted. The unrealized gains are enjoyed throughout a lifetime, and then finally taxed (at least to some extent--a lot isn't taxed at all) when they can no longer do that person any good. In spite of the rhetoric (which is similar to the White House ill-conceived rhetoric about Saddam's WMD, even after we knew he didn't have any), there's very little evidence of family farms being lost to pay federal estate taxes--in part, because the exemption level is very high and in part, because there are very generous provisions for payment of any estate tax liability that may apply over a period of 14 years.
So why does there appear to be support for a very high exemption or even repeal of the estate tax?
The UFE/PC report (supported by estate tax obligation estimates from Citizens for Tax Justice and the statistics presented by Michael Graetz and Ian shapiro in their 2005 book, Death by a Thousand Cuts) provides a no-holds-barred look at the stealthy and misleading campaign waged by billionaire families--directly and through their businesses or their businesses' trade associations--to save themselves trillions of dollars in taxes. It names names and steps on toes.
The report shows how families like the Coxes of Cox Enterprises, the Gallos of E&J Gallo Winery, the Koch Family of Koch Industries, the Mrs, Nordstrom, Walton and Wegman and other families contribute strategically to the Bush campaign, to defeat Daschle, and to subsidize purported "grassroots" groups to push their agenda. Six appendices provide even more material: profiles on the super-wealthy families financing the effort to repeal the estate tax, description of the myths this effort has perpetuated about the estate tax, a statement of the reasons to preserve the estate tax, recent opinion polls on the estate tax, fiscal context, and the family estate tax coalition's ad against the estate tax.
What are some of the groups funded by these families? They include the Policy and Taxation Group, the American Family Business Institute, the Club for Growth, and Citizens for a Sound Economy (now FreedomWorks). Another group, the Free Enterprise Fund, has also participated in ad campaigns with the American Family Business Institute. Id. at 14. The director of the Policy and Taxation Group has intentionally kept its members secret since 2000. Id. at 15. It also "claims to assist 'think-tank' organizations such as Citizens for a Sound Economy, The Heritage Foundation, CATO Institute, The Tax Foundation and others to distribute information about the damaging effects of estate and gift taxes." Id. at 15. See earlier postings on A Taxing Matter about The Tax Foundation's clever anti-tax rhetoric, here and here and here. The families and trade associations played a key role in developing the Business Coalition to coordinate the repeal campaign, and that group worked closely with Bush political advisor Karl Rove and others. Id. at 20-21.
Here's an excerpt from the executive summary of the UFE/PC report (formatting collapsed).
These families--the members of which own the first and third largest privately held companies in the United States and hold about a 40 percent share in the world's largest retailer, Wal-Mart--stand to save a whopping $71.6 billion if their bid succeeds. They have relied on their fortunes, the resources of their companies and their business connections to marshal a massive anti-estate tax juggernaut that has reported nearly a half-billion dollars in lobbying expenditures ($490.3 million) since 1998. The families also have helped finance outside groups that have spent millions on fear-mongering ad campaigns intended to sway public opinion against the estate tax. These ads have shamelessly retailed myths that the estate tax is responsible for wrecking small businesses and family farms, and that regular Americans should fear a crushing tax bill when their loved ones die. In fact, only about one-quarter of one percent of all estates will owe any estate taxes in 2006. And the American Farm Bureau, a member of the anti-estate tax coalition, was unable in 2001 to cite a signle example of a family being forced to sell its farm because of estate tax liability. ... If the families' repeal bid succeeds, it will cost the U.S. Treasury about a trillion dollars in the first decade. ... For their campaign, the estate tax foes have relied on stealth, fear and fraud. Id. at 8-9.
What's an example of the "stealth, fear and fraud" used by the groups? The report quotes Michael Graetz's statement in a speech that "[t]he key to success was to put a sympathetic face on the repeal movement. small business owners, farmers and the like, even though the bulk of the money at stake is liquid, portfolio wealth owned by people with $20 million or more in assets." Id. at 23.
Of particular interest is the report's dismantling of various lies that have been used to "sell" the estate tax on administrability and fairness grounds.
One of their biggest whoppers is that the estate tax costs nearly as much ... to collect as it brings into the treasury. In fact, the annual revenue from the estate tax is more than double the entire budget of the IRS. Another ready talking point has been the argument that the levy represents a double tax. This one is particularly ironic, in the case of the wealthy families, because most of their assets have yet to be taxed a first time, let alone a second. Id. at 9-10.
The study also points out that from 70 to 90 percent of these wealthy families' wealth is in the form of "untaxed, unrealized capital gains." Id. at 10. Those gains are never taxed during the current owner's lifetime so long as they hold onto the assets, and are often not taxed in the heirs lifetime. If heirs sell, they use a stepped up basis and pay no tax. If heirs hold, they pass the same assets along to their heirs with a stepped up basis. "No taxation for generation after generation" would be a much more fitting slogan than "double taxation."
The executive summary ends with an important point about the source of many of these families' wealth. Estate tax repeal advocates claim that the estate tax is unfair because it punishes hard work and thrift. But the report notes that "[i]n only a handful of the families profiled in this report is the individual who actually earned the fortune still alive. Thus, most of the members of these families can attribute their wealth to inheritance, not to their own hard work." Id. at 10. A good example--the Walton children worth about $16 billion apiece.
This report can play an important role in leading to a more informed debate about the role the estate tax should play in the panoply of federal taxes. If we care about sustainable democratic institutions, we have to consider the impact of growing inequality of income and resources. Wealth begats power, and power begats corruption. The estate tax is not a full answer to that problem, but it is a start. We should not eliminate the tax; in fact, we should permit the reinstatement of the 2000 exemption amounts and rates to take place as currently scheduled in 2010. It will help with our enormous deficit problem. And, as an added bonus, the estate tax is likely to stimulate growth. It takes wealth that has been locked into old forms of investment and frees it up for important government services that can build human capital (education funding) and technological strength (research funding)-- all of which can spur innovation and further economic growth in a reinvigorating cycle.
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