March 1, 2001

March 1, 2001 | Commentary on Taxes

The Death Tax Must Die

It's odd to hear people campaigning for a tax that's aimed at them. But it's happening. Some rich people are arguing that the government should keep the death (or estate) tax that was created decades ago to break up the holdings of the so-called robber barons.

Unfortunately, if today's mega-rich get their way-and President Bush essentially has asked Congress to prevent that from happening-it's the poor and middle class who hope to be rich themselves someday who'll wind up suffering.

William H. Gates Sr., father of Microsoft gazillionaire Bill Gates and a wealthy man himself, recently argued in The Washington Post for keeping the death tax. He said repealing the tax, which is levied on all assets, including family homes, farms and businesses, would widen the gap between rich and poor and necessitate cuts in government programs that help children and the elderly. About 120 wealthy folks have sided with Gates, including financier George Soros and investor Warren Buffett (worth a combined $33 billion).

But their support of the tax makes about as much sense as a flock of turkeys supporting Thanksgiving dinner. Here's why:

Go Ahead, Tax Me. Arguments to keep the tax by the rich may sound persuasive, but actually carry little weight. Let's face it: Unless the government creates a tax that soaks 99.5 percent of their incomes, changes in tax law don't affect them. They can literally afford to take any position they want.

They're also the ones least likely to wind up paying death taxes. Their armies of tax lawyers and financial consultants work to shelter every penny from the taxman. That's why you don't see second, third or fourth generation Rockefellers, Vanderbilts or Kennedys working at your local 7-Eleven.

The rest of us don't find tax avoidance so easy. The death tax kicks in on estates worth $675,000 and up. By 2006, it will affect estates worth $1 million and up. Sure, that seems like a lot of money, but not if you've spent a lifetime pouring long hours, hard work and every dime available into a business you want to give to your kids. Or into a farm or lumber operation that's worth millions on paper but provides just a modest living.

Then there are the costs of dealing with the tax. The average family business spends in excess of $125,000 on lawyers and accountants just to hang on to the business after a death. This is a major reason why seven out of 10 family businesses aren't passed to the next generation and why only one in 10 makes it to the generation after that.

The Color of Money. Another fact about the death tax you won't hear from Gates and his fellow country clubbers: Minority business owners are getting nailed by it.

Take the Chicago Defender newspaper, an important voice for the black community for nearly a century. When Defender owner John Sengstacke died recently, his granddaughter was forced to seek outside investors and even considered selling the paper to pay off the death taxes, which totaled $4 million.

More blacks can expect the same experience. Income levels in black households have tripled over the past 24 years, and the number of black-owned businesses more than doubled from 1987 to 1997. According to a recent survey, the death tax is the most feared federal tax by black business owners. Another survey shows that nearly seven out of 10 of minority business owners say they've had to take expensive steps to protect their assets.

Not surprisingly, they resent it. They'd rather take the money they're being forced to pour into additional life insurance and legal fees and use it to expand their businesses and leave their kids better off.

Even Oprah Winfrey's miffed. "I think it's so irritating that once I die, 55 percent of my money goes to the United States government," she told an interviewer. "You know why it's so irritating? Because you already paid nearly 50 percent when the money was earned."

High Cost, Low Importance. Government programs won't miss the death tax much if it's repealed-it raises slightly more than 1 percent of total tax revenues. And any benefit is outweighed by the fact that people spend more hiring lawyers and accountants to help them navigate it successfully than the tax brings in. According to one study, the $27.8 billion the government collected from the death tax in 1999 cost people $36.4 billion to pay.

The death tax must die, no matter what Gates and his billionaire buddies think. It's killing the American Dream.

William Beachis director of the Center for Data Analysis at The Heritage Foundation (www.heritage.org), a Washington-based think tank.

About the Author

William W. Beach Director, Center for Data Analysis and Lazof Family Fellow
Center for Data Analysis

Related Issues: Taxes

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