George Steinbrenner may not be everyone’s idea of a responsible family man. But the New York Yankee owner did his family a solid last month by dying this year. Because 2010 was the year of estate tax jubilee—the oddest legacy of the Bush administration’s tax cuts—not a penny of the estimated $1.15 billion he left behind can be touched by Uncle Sam. Had the Boss departed for the great sky box in the sky just seven months earlier or five months later, his heirs would have collected at least $500 million less.
Stunningly, though, some two-thirds of Americans—including 55 percent
of Democrats—say the tax should be repealed, an extraordinary result at a
time when the annual deficit is running well over a trillion dollars.
Depending on how you look at it, Steinbrenner’s clean getaway was either a model of enlightened tax policy or a betrayal of everything the U.S. tax code stands for. That debate goes before Congress right now, as policymakers figure out how to handle the expiration of the previous administration’s tax cuts. That there is a debate at all is a triumph of political salesmanship over enlightened self-interest and of emotion over, well, plain arithmetic.
On the face of it, the federal estate tax ought to be the least controversial levy on the books. Most voters will never come close to having to pay it. The scheduled 2011 estate tax would touch only about 2 percent of families, mainly because the law typically comes with enormously-wide loopholes. The first few million of your estate has traditionally been exempt from taxes ($1 million next year, as the law now stands, and $7 million for married couples in one of several proposals now before Congress).
In addition, expenses for your funeral, any charitable bequests, and every cent you leave your spouse are all tax-free. In 2008, according to estimates by the Urban Institute’s Tax Policy Center, the wealthiest 1 percent of households paid over 80 percent of the $23 billion the tax raised; the top tenth of a percent alone accounted for 46 percent of the total.
Stunningly, though, some two-thirds of Americans—including 55 percent of Democrats—say the tax should be repealed, an extraordinary result at a time when the annual deficit is running well over a trillion dollars.
Why? If you ask the anti-tax thinkers at conservative think tanks, the problem with the estate tax is economic efficiency. Former CBO director, Douglas Holtz Eakin, writing for the American Family Business Foundation, argues that estate taxes discourage saving and undermine job creation, particularly at small companies.
masterstrokes of political marketing.
But that’s not really why people hate estate taxes. Like all such counterfactual economic arguments, Holtz-Eakin’s view is unprovable and endlessly debatable. (The liberal-leaning Brookings Institution lands a solid counterpunch here, for example.) It’s certainly not self-evident that a tax that affects only a few small businesses would have a major effect on their hiring. As for the supposedly chilling effect an estate tax may have on rich people’s incentive to save, that could easily be offset by the savings disincentive tax repeal might have on plutocrats’ heirs. How much would you save, after all, if you knew a multi-million-dollar fortune would one day be yours, free and clear.
Clearly, opposition to the estate tax runs deeper than supply-side economic theory. In their book Death by a Thousand Cuts, Michael Graetz and Ian Shapiro, both law professors at Yale, describe how a coalition of small business interests and wealthy families (including the Gallo wine and Mars candy heirs), stole the debate. Renaming the levy “the death tax” was the first of several masterstrokes of political marketing. But according to Graetz and Shapiro, it wasn’t the key piece of salesmanship:
is the way in which it changed so many people’s opinions about who
was affected by the tax and its fairness as a means of funding government…
Once the issue became of abstract fairness rather than the best policy for
treating giant accumulations of wealth in a democratic society,
the philosophical argument had been won.”
“I do think the issue of fairness resonates with the public,” Graetz explained to Fiscal Times reporter Temma Ehrenfeld. “People would be upset if the Steinbrenner family had lost control of the Yankees because of taxes, for example.” The belief that one day you, too, could be a millionaire runs too deep in the American psyche.
In other words, you can’t win the argument in favor of a robust estate tax—and it clearly should be won—merely by pointing out that it soaks the rich. You must fight fairness with fairness, so to speak. If the tax were to be repealed as most Americans say they wish—or, more likely, only a minimal one reinstated—the foregone revenues would have to be made up elsewhere. Is it fairer to tax the income or assets of middle class Americans than to tax those who can afford it far more easily? Steinbrenner’s heirs, after all, would have done just fine had they only $600 million or so to divvy up.
There’s also the question of what the wealthy owe society for its role in making their fortunes possible. Much as Americans love the idea of the self-made millionaire, there is no such thing, as billionaires from Warren Buffett to Bill Gates freely admit. At least there is no such thing in America, where everyone begins with a huge head start over equally intelligent or motivated people in, say, Afghanistan or Bolivia. (Buffett calls being born here “winning the game of ovarian roulette.”)
In the end, the wealthy’s fair-share debt to society may be the most persuasive argument for the estate tax. As the father of the Microsoft founder, Bill Gates, Sr., puts it, “American society has made it possible for wealthy men, women and their families to have an elegant life, first-class education, and virtually unlimited options about where to go and what to do. Society does have a just claim on these fortunes."
Reporter: Temma Ehrenfeld
Eric Schurenberg is the Editor-in-Chief of the CBS Interactive Business Network
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