April 13, 2005


Erosion of Estate Tax Is a Lesson in Politics: A Break for the Well-to-Do Becomes an Everyman Issue (Jonathan Weisman, April 13, 2005, Washington Post)

In 1992, when heirs to the Mars Inc. fortune joined a few other wealthy families to hire the law firm Patton Boggs LLP to lobby for estate tax repeal, the joke on K Street was that few Washington sightseers had paid so much for a fruitless tour of the Capitol.

Today, the House is expected to vote to permanently repeal the estate tax, moving the Mars candy, Gallo wine and Campbell soup fortunes one step closer to a goal that once seemed quixotic at best: ending all taxation on inheritances.

"I think this train has an awful lot of momentum," said Yale University law professor Michael J. Graetz, a former senior official in the Treasury Department of President George H.W. Bush.

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.

Which is why Socialism never stood a chance--we're a Puritan Nation.

Posted by Orrin Judd at April 13, 2005 12:47 PM

Unfortunately this will become a windfall for the leftwing cohorts ranging from charitable funds to the conscience stricken trust babies, most of whom come to detest the capitalist system that generated their good fortunes.

Posted by: Genecis at April 13, 2005 1:20 PM

But that is a drop in the bucket to the windfall Middle Americans get when they inherit estates in the $1-2 million range which are quite commonplace, or certainly the benefit to the families of small farmers and businessmen whose holdings were being taxed at death.

Posted by: bart at April 13, 2005 1:29 PM

The Trustafarian Leftists don't notice the estate tax as it is because they're wealthy enough that they can afford to take the hit without a slip in lifestyle. The people it hits are entrepeneurs on the way up who are big enough to have to pay the tax, but not so big that they don't notice it. (If you have most of your, say, $4.5m net worth in a big illiquid asset--a closely-held business--and have to pay tax at 40%+ marginal rates on everything over $1.5m, the tax is a big issue for you.) In effect, the estate tax is not a tax on inherited wealth so much as it is a tax on upward mobility.

Maybe that's why the Trustafarian Leftists like the estate tax so much--it reinforces social stratification by reducing the opportunity for the "wrong" sort of people to accumulate wealth.

Posted by: Mike Morley at April 13, 2005 1:42 PM


Target! The tax serves a gate-keeping function to ensure the club remains exclusive. It also provides an opportunity for moral preening and the furtherance of the idiot notion that the quantity of wealth is static and must therefore not be allowed to concentrate.

Posted by: Luciferous at April 13, 2005 2:12 PM

The thing I always hear is that almost nobody ever pays the estate tax. Well, duh...people jump through hoops to avoid ever paying it.

It's ridiculous. End it.

Posted by: Matt Murphy at April 13, 2005 4:03 PM

The principle is? If we aren't willing to protect the richest of our brethren they'll be coming after us next.

Posted by: h-man at April 13, 2005 4:33 PM

The reason those trust funds exist in the first place is in large part due to the very rich trying to avoid paying that tax. You can only set up such funds if you are liquid enough to transfer the assets. When your wealth is tied up machinery or farmland, it gets much harder, which is why those family owned companies mentioned are against it,. People like the Gates family can be for it because they know they won't be paying it, while getting brownie points from leftists for their class betrayal.

Posted by: Raoul Ortega at April 13, 2005 5:46 PM


The principle is even simpler. Why is death a taxable event?

Posted by: bart at April 13, 2005 6:31 PM


Right...one Democratic congressman said a few years ago he was voting to end the estate tax simply on moral grounds. Taxing people when they die (or their descendants) is odious and it rubs even unaffected parties the wrong way.

Posted by: Matt Murphy at April 13, 2005 10:09 PM

They tax estates because they can. If the testator or intestate has not already disposed of his assets, his heirs must resort to state processes to do so. This necessitates inventories and the like. The state now knows what you have, and takes a bite

Posted by: Lou Gots at April 14, 2005 9:59 AM

Actually, we tax large estates for the perfectly sensible reason that people thought it would work against the development of an aristocracy. It was a tax that was imposed and supported by elites upon them themselves.

Posted by: oj at April 14, 2005 10:17 AM

What's wrong with an aristocracy per se so long as they aren't using government to loot the general public?

Posted by: bart at April 14, 2005 10:44 AM


So, as in most things, the government does what it does with all the logic and morality of a Sicilian crime family.

Posted by: bart at April 14, 2005 10:45 AM

OJ: No. The estate tax does not and cannot work like that. The estate tax is voluntary.

The tax makes a certain amount of sense in the context of an income tax, in that it (along with the gift tax) prevents a leakage from the system.

Unfortunately the rate structure got way out of wack after the 1986 revision of the income tax. maximum income tax rates droped under 40% but estate tax rates remained at 55%.

The correct system would have been to reset the gift tax rate at the maximum income tax rate and the estate tax rate at G/(1+G) where G is the gift tax rate. I.E. if the current maximum income tax rate is 35%, the gift tax rate should be 35% and the maximum estate tax rate should be 26%.

Unfortunately, the Dems thought that the purpose of the estate tax was to punish the rich, not to raise revenue. They stood fast on the rates and are going to wind up without the tax.

Note that the repeal does not repeal the gift tax, which shows how fundamentally unserious it is.

Posted by: Robert Schwartz at April 15, 2005 2:03 AM