From: Pete du Pont
To: William H. Gates Sr.Posted Friday, March 9, 2001, at 8:30 PM ET Pete du Pont is a former governor of Delaware and policy chairman of the Dallas-based National Center for Policy Analysis. He writes a column each 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,
Your arguments against the repeal of the death tax seem flawed on several counts and fail to address the most important issue of all, the unfairness of the tax. The arguments you make are those of a big government exemplar; you oppose actions that reduce revenues or alter the government status quo.
The cost in revenues to governments, federal and state, is your first argument. We have a $5.6 trillion surplus, and yet the $28 billion you say repeal of death taxes would have cost in 1999—just one-half of 1 percent of the surplus—is of primary concern to you. So much so that you suggest we might have to cut Social Security or Medicare to make up the difference. It's a dead horse, Mr. Gates (see my current Opinionjournal.com column for some other dead horses). Our government is not suffering from a lack of resources. Threatening dire consequences to major programs because of minor revenue reductions does not add credence to your argument.
Adding insult to injury, you impugn the character of thousands of donors to charitable causes whom you believe give because they are greedy for the tax deduction. Death tax repeal would "devastate nonprofits" you say, as if all of us give to the United Way, universities, museums, and our places of worship only because of the tax deduction. You underrate the American people, Mr. Gates. Can you seriously contend that people give to Planned Parenthood or the Sierra Club for the tax deduction? The argument also defies logic, contending the more money people have the less they will give to charity. I would bet the opposite would be true.
As for death taxes "affect[ing] only the wealthiest 2%," that is simply not so. According to Treasury Department estimates, some 47,000 deceased people paid some death tax last year, 40,000 of whom had estates of $2.5 million or less. The National Development Council cites the example of a 20-year-old who saved and invested $1,000 each year until he was 65. He will then have as much as $850,000 in financial assets and will owe death taxes if he dies the next day. Why do you believe it is fair to tax him? Or a $2,000-a-year saver who will have a million and a half dollars at death?
But these people are not the only ones affected. Tens of millions of Americans employ accountants and attorneys to avoid paying the death tax. That is the number affected, and the cost to them and the economy is large. A study by the National Association of Business Owners found that the average female entrepreneur spent $60,000 on death tax planning. Family businesses in Upstate New York were found to have spent $125,000 each. Multiply that by hundreds of thousands of businesses and people, and you see the negative impact of the death tax on the nation. There are billions of dollars simply wasted on legal stratagems that could better be invested in our economy or given to charity.
But your final argument is the crux of it: Death taxes must be used to prevent too many people from accumulating too much money and establishing a "dangerous, permanent aristocracy" in America. It's a 1930s argument, but if you believe it you should be advocating a massive expansion of death taxes; the fact that so few are paying them must be a clear and present danger to the Republic. Only 374 people with estates over $20 million paid the tax last year. Between the ball players, tobacco lawyers, Hollywood actresses and producers, and the dot-com billionaires (well, maybe there are fewer of them just now) there must be thousands and thousands with that much money. Shouldn't the tax be expanded to get them all?
My view is very different: I believe the death tax should be repealed because it is unfair. Fairness matters in America, and a great many people see the confiscation of 55 percent of whatever is left after you have paid your taxes all your life to be unfair and wrong. As Martin Feldstein has calculated, a 50-year-old who earns an extra $1,000, invests it in a 7 percent bond, and dies at 80 will have paid income and capital gains taxes that reduce its value to his children by 65 percent. On top of that, Mr. Gates, you want to seize up to 55 percent of the remainder when the wage earner dies.
It makes no sense, except as you point out, as an attack on wealth.
But it is not a very effective attack on wealth since the wealthy rarely pay the tax. The death tax was designed as a symbolic gesture, to be paid by the 46 millionaires whom FDR thought "necessary to throw to the wolves" to prevent Huey Long from enacting something even worse. It is structured so that avoiding its payment is easily done if one has the cash to pay the lawyers. And it brings almost no revenue to the Treasury.
So, the death tax is fiscally useless, in practice non-functional, and unfair. It exists by virtue of two pillars of liberal thought: It is a tax, and that is good; and it is aimed at the wealthy, and that is better. It may be aimed at the wealthy, but it is hitting the middle class unfairly and penalizing the entrepreneurial spirit. It is time for it to go.
From: Pete du Pont
To: William H. Gates Sr.Posted Friday, March 9, 2001, at 8:30 PM ET Bill Gates Sr. is the co-chair and CEO of the Bill & Melinda Gates Foundation. Pete du Pont is a former governor of Delaware and policy chairman of the Dallas-based National Center for Policy Analysis. He writes a
column each Wednesday for the
Wall Street Journal's
Opinionjournal.com.
Reader Comments From The Fray:
[Notes from the Fray Editor: How many $20 million+ estates a year? Good discussion starts here. And for two short posts that cover the issues, click here. Death Tax, Estate Tax…if names matter, how about calling it the Wealthy Heir Tax, here. And a long, involved and passionate ("Wealth is this: a home secure from the people who would deprive you and your progeny of it") argument started here. There were many excellent posts: use the Fray Editor's Picks button to find some of them (they go back to February, with comments on the Microsoft trial intervening, because at Slate we have such an appetite for covering everything).]
I'm not really sure how to phrase my question any more delicately than this: why should a dead person be able to dictate what happens with capital they accumulated when living? If a wealthy person wishes to be generous--whether to charities, universities, family members, or others--a true act of generosity would be to give while still alive. The idea that people of immense wealth give freely to others only once they are sure not to "need" any of it for their own spending purposes is offensive to me, and I'm sure to many, and I've never really heard it raised.
--Marc E. Johnson
(To reply, click here.)
People always argue that the estate tax is an unfair "double tax." Why don't they argue this about real estate and personal property taxes? Obviously these are quite similar because they tax assets rather than income. The answer is that local property taxes are flat; everybody pays the same amount per dollar. Pete DuPont thinks the estate tax is unfair because it disproportionately affects the wealthiest 2%, not because it taxes people twice.
--Andrew W. Cohen
(To reply, click here.)
The article refers to the supposed disaster to charities if the estate tax disappears. This gives us an insight into the mind of the writer, but of no-one else. Some years ago, the estate tax could be imposed on assets left to a spouse after a modest allowance known as the "marital deduction". When the marital deduction was changed to unlimited, and so no estate tax was imposed on anything, no matter how much, left to a spouse, the charities howled. Their fears were unfounded and the charitable giving continued to increase.
--Richard Aubrey
(To reply, click here.)
Pete du Pont says it is unfair to tax a man's wealth while he is acquiring it (income tax) and then again when he dies. Unfair to whom, I wonder? The dead man, however much attention he may have given to the manner of disposition of his assets in anticipation of his death, being dead, no longer cares. Logically, it is impossible to be unfair to him. He is beyond the reach of unfairness. Any unfairness must, therefore, be unfairness to the heirs. But what is unfair about a tax on wealth unearned, either by labor or investment, that falls into the laps of the undeserving as a result of the death of a relative? If the aims of tax policy include distributing the burden of financing the state among those shoulders that can bear it best, and avoiding burdening labor or investment -- what fairer tax can there be than one that falls on great wealth in the hands of those who have acquired it fortuitously, without either labor or investment?
--Dallis Radamaker
(To reply, click here.)
When arguing about other taxes, how often do we get into discussions about Alexis de Tocqueville's observations on American meritocracy? Or about English primogeniture? The estate tax is the most ideological tax we employ.
The sole purpose (I mean besides the fact that money needs to be generated so that the government can run) for it is to curb the rise of an "unofficial" aristocracy in the United States. I am not mocking this notion; I am for the estate tax. But I also know that when I debate someone else about its merits (probably someone who refers to it as the "death tax"), sooner or later (probably sooner) we will get into the discussion about the unofficial/official aristocracy, inheritance, idle rich, abundance, meritocracy, etc.
When the marginal rates may go down and people debate the issue, how often do they get into these issues? Or is the discussion mainly confined to the debate over revenue and its usage (spending, debt reduction, or tax-cut)? What is the last estate tax discussion you remember that centered on revenue issues without going into said diversions?
--MarkEating
(To reply, click here.)
(3/13)Â
Reader comments From The Fray:
[Notes from the Fray Editor: A lot of very familiar ideas got a going-over in this Fray, especially the phrases 'death tax'--so we particularly appreciated Marcos Kohler's question: Why complain about "the state taking 55% of your treasure, if God has just taken the whole stuff?"--and 'double taxation'--so ditto for Andrew Torrez' point: "Whether a dollar is taxed once, twice, or a million times has no inherent significance; it's not like the dollar's feelings get hurt. Dollars don't have rights; people do." We're not taking sides, we just appreciated their originality after reading several pages of posts on this topic, and that's also why we liked David V's phrase--the "King Lear Tax".]
Income in our country has a fairly wide range of distribution. People in the top 1% of incomes earn a couple hundred thousand a year, while people in the bottom quintile are lucky to earn 10% as much. The distribution of assets has a much wider distribution curve. The top 1% of asset holders have a few million, while the bottom quintile is lucky to have a couple thousand in savings. That is a 100-fold difference in the distribution curve. It makes perfectly good sense to tax based on ability to pay. Someone receiving a windfall gift of assets that will place them in the top percentiles of asset holders is in a better position to afford to pay a tax than anyone else in our society.
--Charlie Heath
(To reply, click here.)
Hw about this idea, to assuage du Pont's ire at "double taxation" and to soothe Gates' fear of a permanent aristocracy and decline in charitable giving: Don't tax the estates of the wealthy upon their death. Instead, massively raise the tax rate on inherited income. So, if Mr. Moneybags dies with $10 million, his estate isn't taxed at all--instead, Moneybags Jr. is taxed 55% on everything he receives from the inheritance (minus the first $650 thou, of course, which should just be taxed as ordinary income). Moneybags Jr., of course, could deduct anything he gave to charity, or Moneybags Sr. could reduce Jr's inheritance (and his taxes) by giving to charity himself. There's no double taxation here--Moneybags Sr. pays tax only when he earns the money, not when he dies. The tax associated with inheritance is paid by an entirely separate person, Moneybags Jr.
Mostly, of course, this is semantic fiddling: I'm trying to demonstrate that, for all intents and purposes, the estate tax isn't double taxation (i.e., I basically agree with Gates). But there is one real difference between my plan and the estate tax as it is currently run, and that's an important one: Suppose Richguy has as much money as Moneybags ($10 million), but instead of having one heir, Richguy wants to leave his money equally to his 40 nephews and nieces. Under our current estate tax, Richguy's estate would almost all be subject to the estate tax, just like Moneybags'. Under my plan, each of Richguy's heirs would get $250,000 gross, which would be exempt from everything but ordinary income tax. That seems to me as it should be: Moneybags was contributing to the formation of a permanent aristocracy; Richguy is not. Richguy's nephews and nieces aren't, perhaps, starting on a level playing field with the rest of us, but they don't start on the same high mountaintop as Moneybags Jr.
--Avrom
(To reply, click here.)
If the capital gains tax is in effect a tax on the transfer of ownership, perhaps it would be equitable to apply capital gains rates to estates. Yes, this would be a substantial cut, but it wouldn't do away with taxes--or revenues--entirely. It also appeals to my sense of fairness. If I sell a stock, I get taxed on the gain at one rate. If I die and leave it to my heirs, why should that transaction be taxed at a different rate? This avoids the problem of great accumulations of wealth ever sheltered from taxation while providing a more consistent basis for taxation
--Alan Hayakawa
(To reply, click here.)
So:
"If the business isn't profitable enough that it can bear the taxation, maybe they're marginal businesses that are not efficient enough with capital to be competitive?…"
Because they are already being taxed annually on their income, both by state and federal governments. They are paying payroll taxes and social security taxes. They are paying business licenses and other forms of income to municipalities. If you force them out of business, all of these taxes will go with them. To say nothing of the income taxes paid by the owners of the business and the employees. The jobs and services to the communities would also be lost. The revenues that the jobs of the employees provide would be lost to the community as these people would no longer be able to afford their current standard of living. And on and on.
The inheritance tax …impacts not just the owners but the entire community. To the degree that the change results from a sale, or other liquid transaction, then taxing is appropriate. If not, then the government should wait for their cash until cash is what is truly available and not disrupt the local economy and impoverish a family who has just experienced the loss of a loved one as well.
--Jim Rust
(To reply, click here.)
(3/19)
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Reader Comments From The Fray:
[Notes from the Fray Editor: How many $20 million+ estates a year? Good discussion starts here. And for two short posts that cover the issues, click here. Death Tax, Estate Tax…if names matter, how about calling it the Wealthy Heir Tax, here. And a long, involved and passionate ("Wealth is this: a home secure from the people who would deprive you and your progeny of it") argument started here. There were many excellent posts: use the Fray Editor's Picks button to find some of them (they go back to February, with comments on the Microsoft trial intervening, because at Slate we have such an appetite for covering everything).]
I'm not really sure how to phrase my question any more delicately than this: why should a dead person be able to dictate what happens with capital they accumulated when living? If a wealthy person wishes to be generous--whether to charities, universities, family members, or others--a true act of generosity would be to give while still alive. The idea that people of immense wealth give freely to others only once they are sure not to "need" any of it for their own spending purposes is offensive to me, and I'm sure to many, and I've never really heard it raised.
--Marc E. Johnson
(To reply, click here.)
People always argue that the estate tax is an unfair "double tax." Why don't they argue this about real estate and personal property taxes? Obviously these are quite similar because they tax assets rather than income. The answer is that local property taxes are flat; everybody pays the same amount per dollar. Pete DuPont thinks the estate tax is unfair because it disproportionately affects the wealthiest 2%, not because it taxes people twice.
--Andrew W. Cohen
(To reply, click here.)
The article refers to the supposed disaster to charities if the estate tax disappears. This gives us an insight into the mind of the writer, but of no-one else. Some years ago, the estate tax could be imposed on assets left to a spouse after a modest allowance known as the "marital deduction". When the marital deduction was changed to unlimited, and so no estate tax was imposed on anything, no matter how much, left to a spouse, the charities howled. Their fears were unfounded and the charitable giving continued to increase.
--Richard Aubrey
(To reply, click here.)
Pete du Pont says it is unfair to tax a man's wealth while he is acquiring it (income tax) and then again when he dies. Unfair to whom, I wonder? The dead man, however much attention he may have given to the manner of disposition of his assets in anticipation of his death, being dead, no longer cares. Logically, it is impossible to be unfair to him. He is beyond the reach of unfairness. Any unfairness must, therefore, be unfairness to the heirs. But what is unfair about a tax on wealth unearned, either by labor or investment, that falls into the laps of the undeserving as a result of the death of a relative? If the aims of tax policy include distributing the burden of financing the state among those shoulders that can bear it best, and avoiding burdening labor or investment -- what fairer tax can there be than one that falls on great wealth in the hands of those who have acquired it fortuitously, without either labor or investment?
--Dallis Radamaker
(To reply, click here.)
When arguing about other taxes, how often do we get into discussions about Alexis de Tocqueville's observations on American meritocracy? Or about English primogeniture? The estate tax is the most ideological tax we employ.
The sole purpose (I mean besides the fact that money needs to be generated so that the government can run) for it is to curb the rise of an "unofficial" aristocracy in the United States. I am not mocking this notion; I am for the estate tax. But I also know that when I debate someone else about its merits (probably someone who refers to it as the "death tax"), sooner or later (probably sooner) we will get into the discussion about the unofficial/official aristocracy, inheritance, idle rich, abundance, meritocracy, etc.
When the marginal rates may go down and people debate the issue, how often do they get into these issues? Or is the discussion mainly confined to the debate over revenue and its usage (spending, debt reduction, or tax-cut)? What is the last estate tax discussion you remember that centered on revenue issues without going into said diversions?
--MarkEating
(To reply, click here.)
(3/13)Â
Reader comments From The Fray:
[Notes from the Fray Editor: A lot of very familiar ideas got a going-over in this Fray, especially the phrases 'death tax'--so we particularly appreciated Marcos Kohler's question: Why complain about "the state taking 55% of your treasure, if God has just taken the whole stuff?"--and 'double taxation'--so ditto for Andrew Torrez' point: "Whether a dollar is taxed once, twice, or a million times has no inherent significance; it's not like the dollar's feelings get hurt. Dollars don't have rights; people do." We're not taking sides, we just appreciated their originality after reading several pages of posts on this topic, and that's also why we liked David V's phrase--the "King Lear Tax".]
Income in our country has a fairly wide range of distribution. People in the top 1% of incomes earn a couple hundred thousand a year, while people in the bottom quintile are lucky to earn 10% as much. The distribution of assets has a much wider distribution curve. The top 1% of asset holders have a few million, while the bottom quintile is lucky to have a couple thousand in savings. That is a 100-fold difference in the distribution curve. It makes perfectly good sense to tax based on ability to pay. Someone receiving a windfall gift of assets that will place them in the top percentiles of asset holders is in a better position to afford to pay a tax than anyone else in our society.
--Charlie Heath
(To reply, click here.)
Hw about this idea, to assuage du Pont's ire at "double taxation" and to soothe Gates' fear of a permanent aristocracy and decline in charitable giving: Don't tax the estates of the wealthy upon their death. Instead, massively raise the tax rate on inherited income. So, if Mr. Moneybags dies with $10 million, his estate isn't taxed at all--instead, Moneybags Jr. is taxed 55% on everything he receives from the inheritance (minus the first $650 thou, of course, which should just be taxed as ordinary income). Moneybags Jr., of course, could deduct anything he gave to charity, or Moneybags Sr. could reduce Jr's inheritance (and his taxes) by giving to charity himself. There's no double taxation here--Moneybags Sr. pays tax only when he earns the money, not when he dies. The tax associated with inheritance is paid by an entirely separate person, Moneybags Jr.
Mostly, of course, this is semantic fiddling: I'm trying to demonstrate that, for all intents and purposes, the estate tax isn't double taxation (i.e., I basically agree with Gates). But there is one real difference between my plan and the estate tax as it is currently run, and that's an important one: Suppose Richguy has as much money as Moneybags ($10 million), but instead of having one heir, Richguy wants to leave his money equally to his 40 nephews and nieces. Under our current estate tax, Richguy's estate would almost all be subject to the estate tax, just like Moneybags'. Under my plan, each of Richguy's heirs would get $250,000 gross, which would be exempt from everything but ordinary income tax. That seems to me as it should be: Moneybags was contributing to the formation of a permanent aristocracy; Richguy is not. Richguy's nephews and nieces aren't, perhaps, starting on a level playing field with the rest of us, but they don't start on the same high mountaintop as Moneybags Jr.
--Avrom
(To reply, click here.)
If the capital gains tax is in effect a tax on the transfer of ownership, perhaps it would be equitable to apply capital gains rates to estates. Yes, this would be a substantial cut, but it wouldn't do away with taxes--or revenues--entirely. It also appeals to my sense of fairness. If I sell a stock, I get taxed on the gain at one rate. If I die and leave it to my heirs, why should that transaction be taxed at a different rate? This avoids the problem of great accumulations of wealth ever sheltered from taxation while providing a more consistent basis for taxation
--Alan Hayakawa
(To reply, click here.)
So:
Because they are already being taxed annually on their income, both by state and federal governments. They are paying payroll taxes and social security taxes. They are paying business licenses and other forms of income to municipalities. If you force them out of business, all of these taxes will go with them. To say nothing of the income taxes paid by the owners of the business and the employees. The jobs and services to the communities would also be lost. The revenues that the jobs of the employees provide would be lost to the community as these people would no longer be able to afford their current standard of living. And on and on.
The inheritance tax …impacts not just the owners but the entire community. To the degree that the change results from a sale, or other liquid transaction, then taxing is appropriate. If not, then the government should wait for their cash until cash is what is truly available and not disrupt the local economy and impoverish a family who has just experienced the loss of a loved one as well.
--Jim Rust
(To reply, click here.)
(3/19)