From: William Gates Sr.
To: Pete du PontPosted Monday, March 12, 2001, at 11:30 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. du Pont,
I allow that my posing possible losses (not dire consequences) to major federal programs from the repeal of the estate tax may have included a bit of hyperbole. The point is this: There will be some working out of what federal programs and what reduction in our national debt should be supported, and there will be a determination of what tax revenues are necessary to pay for these. Inevitably a tax program will be required to produce the necessary revenue. My focus is the makeup of that tax program. The tens of billions of revenue produced by the estate tax will have to come from somewhere else if the tax is repealed. This will make some element of other taxes larger by the amount necessary to replace estate tax revenues. It is a simple fact that those replacement dollars are going to come from folks a lot less able to pay them than the heirs of our very wealthiest citizens. You speak of fairness—is this fair?
I am not so willing to accept your charging me with insulting those who give to charity with some tax saving motive. I accept the fact that charitable bequests in wills occur where, in the first instance, the person has some predilection to support charity. But decisions of this kind are most often made for a combination of reasons. Certainly acts of goodness are encouraged by, and many would not occur without, the saving that the presence of the estate tax allows.
Here is the typical case: Our hypothetical citizen, Mrs. Smith, has a very large estate, three children, and some urge to make a gift to her university. She is concerned that a major gift to that university will, in effect, be paid by the children. She is hesitant, but then she recognizes that each dollar she takes from the children's inheritance to benefit the university will only amount to 45 cents because of the 55 cents that they would have paid as estate tax. I suggest Mrs. Smith is not a person of poor character if she then concludes, aided by the recognition that the imposition on her children is relatively small, she will make the gift to the university or that she will make a larger gift than what she otherwise might have considered. I do not see this line of thinking, which is routine, as greedy.
A proposal has been made to permit non-itemizers to itemize and deduct charitable gifts in computing income taxes. Is this not predicated on the belief that the availability of a tax deduction is an incentive to give?
I do not know how many people with estates of $20 million or more filed returns last year. You say just 374 actually paid a tax. You seem to say there were thousands and thousands of people with more than $20 million who died last year and only 374 paid the tax—this is, to borrow your phrase, simply not so.
I am not aware of last year's numbers but just two years before, in 1998, there were 374 estates above $20 million that paid $4.4 billion—21.7 percent of total estate taxes. That is 374 out of the some 2,300,000 people who died that year. And just who will be providing these dollars if the estate tax goes away?
"Tens of millions of Americans employ accountants and attorneys" to avoid paying this tax. This assertion is pure hyperbole.
I agree with you and all those who see the need to raise exemptions. Your $850,000 example or possibly even your $1.5 million example is folks who should not, in my view, pay an estate tax.
What I think is fair is that we get as close as we can to a society in which every child starts the race from the same starting line. A society where a good life is one you earn, and not one that you get by winning the chromosome roulette game, is a society we should strive to create. I realize we will never fully achieve that condition. Nevertheless, an aggressive estate tax in respect to the really large estates, one that diminishes the accumulation of vast family fortunes, is a good thing.
This thought does not originate from some political maneuver by FDR. Here is Teddy Roosevelt in 1907 promoting the estate tax:
Our aim is to realize what Lincoln pointed out: the fact that there are some respects in which men are obviously not equal; but also, to insist that there should be an equality of self respect and of mutual respect, an equality before the law, and at least an approximate equality in the conditions under which each man obtains the chance to show the stuff that is in him when compared to his fellows.
Or take Herbert Hoover who said that a moderate inheritance of under $100,000 is a reasonable provision for dependents but: "Several millions of dollars is economic power and too often falls into the hands of persons of little intention to use that power for public benefit either in expansion of enterprise and employment or for public services."
What a fine world it would be if we could repeal all taxes—but this is not possible. If we are going to lower taxes let's be thoughtful about where we do it. Our wealthiest citizens see the movement for tax reduction as an opportunity to get rid of the estate tax. This is a good tax for our country and, yes, a fair tax for our people. If it needs some fixing then let's get at the fixing and forget this talk of repealing it.
From: William Gates Sr.
To: Pete du PontPosted Monday, March 12, 2001, at 11:30 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)
What did you think of this article?
Join The Fray: Our Reader Discussion Forum
SPONSORED CONTENT
PRINT
DISCUSS
E-MAIL
RSS
RECOMMEND...
Facebook
MySpace
Mixx
Digg
Reddit
del.icio.us
Furl
Ma.gnolia
Sphere
StumbleUpon
Obama's Small Masterpiece of a Speech at Fort Hood
Can Death Row Convicts Have Whatever They Want for Their Last Meal?
Does Rupert Murdoch Really Hate Google?
The Crops That Are Secretly Terrible for the Planet
The Three Kinds of Liberals Who Could Bring Down the Health Care Bill
Short Sayings That Make Me Happy
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)