Entry 4:

Pete du Pont is a former governor of Delaware and policy chairman of the Dallas-based National Center for Policy Analysis. He writes a columneach Wednesday  for the Wall Street Journal's Opinionjournal.com. William H. Gates Sr. is a co-chairman of the Bill and Melinda Gates Foundation. 

Dear Mr. Gates:

We seem to agree on several things, but not on the essence of the matter: your view that a death tax is needed to take away wealthy people's capital because it would be better for the country.

We can agree that the estate tax charitable deduction can be an incentive to give. My point is, though, that a tax deduction is not nearly the incentive you seem to think it is. 1999 Treasury data reveals that of the 104,000 estate tax returns that were filed, just under 18,000—about 17 percent—claimed a charitable deduction. Further, of all the charitable gifts given in 1999, less than 8 percent came from estate gifts. Would there be some people who wouldn't donate if there were no death tax charitable deduction? Most likely there would be, but it would hardly be "decimating" to the charitable sector as you suggest.

We also agree that it is not right that people making $20,000 and saving $1,000 a year over a working lifetime, thus accumulating enough money to trigger a death tax, should have to pay it. But if we raised the death tax exclusion to, say, $5 million to avoid that problem, half the revenue generated by the death tax is lost. You argue that replacement dollars must be found somewhere and must come from someone, probably someone with fewer resources. This you say is unfair, a contradictory position. Considering the surplus the government has accumulated, it seems to me a tax cut is very fair. There is no need to send to the government more money than it needs to operate.

You say my belief that tens of millions of people pay accountants and lawyers to avoid paying the death tax is "pure hyperbole." But 22 million Americans own their own businesses. Do they plan what happens to that resource when they die? You bet they do.

The bottom line is that we have very different views of tax fairness. The death tax represents the fourth layer of taxation imposed upon the earnings of an individual. First comes an income tax on the earnings. If what is left after that is spent, there is no more taxation. But if it is saved and invested, which we want it to be to grow our economy and increase opportunities, it is then taxed twice more. The company in which it is invested pays an income tax on its earnings, then the earnings that are distributed to individuals are taxed again. Then, if the company has increased in value, one pays a capital gains tax on the sale of the investment. And after all these government bites out of the earner's apple, you want to seize up to 55 percent of anything that is left. That seems to me wrong and unfair.

Oprah Winfrey makes the fairness case that so many people agree with: "I think it is so irritating that once I die, 55 percent of my money goes to the United States government. … You know why it is so irritating? Because you have already paid nearly 50 percent [when the money was earned]."

The reason for people's frustration is that the death tax is a tax on capital, as opposed to income. It is one thing to tax someone's income as he or she earns it; it is quite another to seize their capital just because you think it would be better for the country if they didn't have it. And that is the nub of your argument: that the government should take what a person has saved because in your view he or she shouldn't have it.

Wealth taxes are a favorite weapon of egalitarians (although shouldn't the job of egalitarians be to build up the poor rather than tear down the wealthy?). But they have a huge cost to the economy that in fact means fewer opportunities for the poor and middle class. Let me give you two examples.

Some years ago I was engaged in a Firing Line debate on tax reform. Lester Thurow, the MIT economist, in a heated argument with Bill Buckley, confessed that if he were writing the tax code, it would contain a progressive consumption tax with top rates "way over 100 percent," so that the wealthy would find it too expensive to buy things. "And you," he said turning to Buckley, "couldn't have your boat." That in a nutshell is the death tax argument: You, Mr. X, shouldn't have all that money to spend.

As it happens, a luxury tax on boats and airplanes was enacted in 1990 as a part of the budget agreement. It raised $17 million in revenue at a cost of 7,600 jobs in the boating industry and 1,470 in the aircraft industry because wealthy people stopped buying boats and planes. The unemployment benefits for the fired workers came to $24 million, not to mention their anguish and lost opportunity. The tax on wealth inconvenienced the wealthy, but lost money for the government and devastated 9,000 working Americans.

A second result of efforts to tax away wealth is always a larger burden on the middle class. Income bracket creep in the high-inflation years of the late 1970s forced middle-income taxpayers into higher and higher tax brackets and led to the tax cuts of 1981. The same is happening now with the Alternative Minimum Tax. It was discovered in 1969 that 155 individuals with incomes over $200,000 (about $1.1 million in today's dollars) had enough legal deductions to avoid paying any income taxes. The AMT was enacted to make sure wealthy people never avoided income taxes again. But it now raises taxes and complicates tax returns for 1.3 million people and, since it is not indexed for inflation either, will impact about 17 million mostly middle-class Americans by the end of the decade. The same is true of the death tax; the effort to capture money from the wealthy is seizing it from the middle class.

Most everyone agrees that income taxes are a fair way to raise revenue. Death taxes, on the other hand, are seen as a seizure of wealth after the taxation of income, something entirely different. The taking of wealth from people who in your opinion should not have it is inherently wrong and, as most Americans understand, very unfair.