Death Tax Repeal Expected Today

The U.S. House of Representatives is today expected to “permanently” repeal what the Republicans have cleverly dubbed the “Death Tax,” the high tax paid on the estates of those who die with a significant amount of assets.

Jonathan Weisman has a piece on the front of WaPo’s business section explaining the political brilliance at work here: “Erosion of Estate Tax Is a Lesson in Politics – A Break for the Well-to-Do Becomes an Everyman Issue.”

Last month, Graetz and Yale political scientist Ian Shapiro published “Death By A Thousand Cuts,” chronicling the estate tax repeal movement as “a mystery about politics and persuasion.” “For almost a century, the estate tax affected only the richest 1 or 2 percent of citizens, encouraged charity, and placed no burden on the vast majority of Americans,” they wrote. “A law that constituted the blandest kind of common sense for most of the twentieth century was transformed, in the space of little more than a decade, into the supposed enemy of hardworking citizens all over this country.”

The secret of the repeal movement’s success has been its appeal to principle over economics. While repeal opponents bellowed that only the richest of the rich would ever pay the estate tax, proponents appealed to Americans’ sense of fairness, that individuals have the natural right to pass on their wealth to their children.

[…]

By 1994, Newt Gingrich’s Republican insurgents had latched onto the estate tax issue, but the Contract With America called for an estate tax reduction, not repeal. In 1995, Luntz poll-tested the term “death tax” and advised the new GOP majority to never use the terms “inheritance” or “estate tax” again.

This is indeed interesting, as most matters of politics come down to practicality rather than ideology. In this case, though, the Republicans managed to persuade ordinary voters–most of whom would never pay the tax–that there was something just not right about people’s money being taxed again when they died. The fact that the tax also affected those who died with small businesses and family farms helped obliterate the class issue, too.

Kevin Drum dubs this “Republican Trust Fund Baby Act of 2005” but allows that,

I actually understand the gut appeal of estate tax repeal. After all, when you die don’t you want to decide who gets your money? And yet, Democrats’ inability to make the counterargument stick is telling. The only thing being taxed is estates of robber baron size; the only people being taxed are the pampered children of the robber barons; and the cost of repeal is on the order of $1 trillion per decade. Apply that to Social Security and the system would still be solvent when Captain Kirk retired.

Technically, though, this isn’t true. The estate tax is “paid” by the person doing the dying rather than by those doing the inheriting, although it amounts to the same thing. And, certainly, the top 2.5% of the country is not the “robber baron” class.

From Weisman’s piece:

President Bush’s 10-year, $1.35 trillion tax cut in 2001 began a decade-long phase-out of the estate tax. The portion of an estate exempted from taxation was raised from $675,000 in 2001 to $1.5 million in 2004. Next year, the exemption will rise to $2 million for individuals and $4 million for couples.

Those numbers once sounded staggering to me but no longer. In the D.C. area, a modest house costs around $1 million. In Kevin’s neck of the woods, much more than that. It would not be at all unusual for a modestly successful attorney, heart surgeon, or small entrepeneur to leave an estate worth $2 million. Indeed, I’d guess some of the founders of Washington Monthly would meet those thresholds.

I don’t deny that there’s something unfair about the likes of Paris Hilton or the Kennedy kids being set for life simply by being born. To the extent that we want our society to be based on “merit,” inherited wealth creates disparities. If the solution is governmental confiscation, though, I want no part of it.

For that matter, if social engineering is our goal, why not simply tax the estates of all decedents one hundred percent? Then, no one would have unearned income.

FILED UNDER: General
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. whatever says:

    The main point you miss is that the very wealthy can shelter their estates from this tax anyway. You think the Kennedy’s don’t have trusts that avoid any estate tax the feds or the states throw at them?

    Kevin is being a bit disingenous, as you poined out, with property values. If a moderate home in SoCal or DC is worth about $1M today, what will it be worth in 30-40 years with Kevin dies? If estate taxes are reinacted, what we are going to see is another AMT, where the left want to tax the “very rich”, but in a short amount of time hits everyone. It’s the way they have worked for decades.

  2. Tom Royce says:

    James,

    You think that has not been thought of? Heck, Clinton even floated the trial balloon of a 15% one time hit on 401k’s and IRA’s.

  3. Eric says:

    My father was a Court Reporter, and late in his career expanded into a small agency, which continued after he passed away. My mother passed away 3 years later.

    While my family was affluent enough to send me to a private college with no financial aid, I never had a trust fund and have had to work since leaving college. The same is true of both of my sisters.

    My mother’s estate was taxed. The limits are clearly not just hitting gazillionaires.

  4. McGehee says:

    It does seem as though our tax system’s one efficient accomplishment is indeed that of separating families from the fruits of their forebears’ labor.

  5. Dodd says:

    In the strictest sense, the SupCt has stated in the past that a 100% death tax would be Constitutional. Under the Common Law, a decedent’s property escheats to the state unless the state declines to take it (and if no heirs are found, this is what happens). It has long been our tradition to allow people to devise their property to their heirs, but that is, again technically, a matter of the state waiving its right to simply take it.

    The estate tax, OTOH, was the brainchild of Socialists who saw it explicitly as a means of preventing concentration of individual wealth. The varying degree to which it penetrates down into the middle class having shown no effect on the age-old American trend of “three generations from overalls, to mimosines, back to overalls”, it never really served even this purpose well.

  6. Anderson says:

    Hey, if we’re going to tax people *at all*, isn’t a tax imposed after you’re dead just about the most painless way to do it? I am always mystified why *this* tax annoys people so much.

  7. James Joyner says:

    Anderson: Mostly because it’s taxing money that’s already been taxed. People pay money on their income and their property and then they get shafted yet again when they’re trying to pass it on to their kids.

  8. Parker says:

    100% is not enough – you should not be allowed to give your family anything while you are alive, either!

  9. Death and taxes

  10. Rick DeMent says:

    Evey dime I spend and pay sales tax on has already been taxed, pretty lame argument really. But let me ask you this, if they make Cap Gains tax exempt would you then think it’s OK to tax estates again?

  11. James Joyner says:

    Sales tax, though, is mostly state and local vice the income tax. I’d prefer a single consumption-based tax.

  12. The problem also appears when small-business owners are forced to sell the business to pay the tax. Often, the business must be sold for less than its market value, because it will be common knowledge to the buyer that time is of the essence for the seller–after all, the IRS is going to get their cut.

  13. Jammer says:

    Drum’s numbers sound bad. Federal estate taxes are NOWHERE near bringing in $100 billion a year. His link uses some estimates from a Congresional committee, and throws in interest for good measure, but it just doesn’t make sense. For example, in 2003, the “Death and Gift” revenue line for the Feds was $22 billion (this was from the CBO). Even if we were to *double* that, you still only get to $400 billion over ten years, not a trillion.

    Now, I know numbers will go up, but even now the estate and gift taxes form only about 1-2% of total govt income. This is not a back-breaker. It may be bad policy, but not becuase its going to leave the coffers empty.

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