The Estate Tax as a campaign issue

July 26, 2005

The debate over eliminating the Estate Tax has been simmering in the Senate for weeks and Republicans are starting to believe that Dem opposition to a complete repeal of the tax will ultimately derail the bill.

But they’re going to schedule a vote anyway, because they want to use the effort in campaign ads next year.

Unless Democrats agree to a deal, Republicans are vowing to use the estate-tax vote as political ammunition in the 2006 cycle. […] Frist favors full repeal of the tax “above all other options,” said Amy Call, his spokeswoman. She added, “[Frist] hopes 59 of our colleagues join us.”

His position seems to be in line with conservative activists who think they could gain political advantage by forcing a simple up-or-down vote on repeal upon centrist Democrats, especially in red states.

“It’s time to put up or shut up. Who is for abolition, and who is not? We’ll have a target list” of who supports and opposes repeal, said Grover Norquist, president of Americans for Tax Reform.

I know I’m a hopeless idealist, and I should appreciate the fact that GOP attack ads don’t have to make sense, but if anyone should be using the Estate Tax vote in the 2006 cycle, shouldn’t it be the Dems?

Consider the landscape we’re dealing with here. The deficit for the year is going to be a third of a trillion dollars. The wars in the Middle East are costing us billions of dollars a week. Benefits for low-income families are already being cut. The Republicans consider these circumstances and believe that multi-millionaires deserve another exclusive tax cut that will benefit only the super-rich. And if you disagree, you shouldn’t even be in Congress.

We’re talking about a tax cut that could cost the government more than $1 trillion over the first ten years after the full repeal goes into effect. It’s so irresponsible that even Alan Greenspan, who hasn’t hesitated to embrace previous GOP tax cuts, told Congress this is a mistake.

Best of all, charitable giving, which Bush is pretending to care about, would be seriously undercut if the repeal becomes law. The non-partisan Congressional Budget Office has “found that the estate tax encourages wealthy individuals to donate considerably more to charity, since estate tax liability is reduced through donations made both during life and at death.” If there were no estate tax in 2000, for example, “charitable donations would have been between $13 billion to $25 billion lower than they actually were.”

Republicans, despite all of this, are anxious for an Estate Tax showdown — and nearly every GOP senator in the chamber will vote for a full repeal. If facts still have any place in the political discourse, I don’t think there’s any reason for Dems to be afraid of this fight.

The supporters of the repeal, like Norquist, are among the lowest of the low. Norquist himself compared the estate tax to the holocaust on NPR. It’s mind-boggling how skewed American perception of this tax is. If the public were more informed they would be supporting sustaining the estate tax en masse. We need to use forceful, resonant language in this battle, to debunk the right-wing rhetoric surrounding it, and start questioning the patriotism of the people who want to cut taxes on the very wealthy and run record deficits while simultaneously running a war. We should compare the size of the tax cuts to the cost of the war, and to the cost of life-saving armor and equipment our troops aren’t getting.

  • This may be a stupid idea but here it is anyway. Maybe the Demos should propose some sort of an option for the fatcats. Option one would consist of no estate tax in exchange for paying an additional 5-7% of income tax every year until their death. Option two would be to pay the lower income tax rate but be subject to the full estate tax rate at death. Once one selects, there is no going back. Pick your poison and remember “freedom isn’t free” and all that.

  • The trick here, as always with issues that should win for us, is to retake the spin. Calling it “the death tax” and talking about farmers losing their land causes the Republicans to win the message. I talk with low income people who think they will be taxed at their death. It’s madness, but we live in a world where the general public wants to know the answer to an issue in a sound bite, so the party of ideas, i.e., the Democrats, lose, because it takes nuance to explain ideas. The party of slogans and sleight of hand holds all three branches of government.

  • Oh yeah continuing my earlier point, Dems should compare the “death tax” on large estates to the birth tax of ridiculously huge federal debt that the Republicans have given every one of us, and ask which is preferable.

  • Or the “greed trumps national security” repeal legislation.

    I prefer the “freedom tax”–the tax will ensure that the rich folk have the power of government behind them and continue to possess the freedom to make millions in busines ventures within and without the US.

  • Call it the “Silver Spoon Tax”!!

    CAC—this is a great one. It calls up the perfect frame, one which almost no-one in middle-to-lower brackets would get confused about.

    so the party of ideas, i.e., the Democrats, lose, because it takes nuance to explain ideas.

    Well, Dems are the party of good ideas, and they do lose. But this does not mean that they need to rely on long winded explanations or boring statistics to make a point. The “silver spoon tax� manages to convey a host of ideas about the legislation and where an individual might fit into the argument.

    I think Dems can and will win elections when they can match and exceed what they so often envy (but say they hate) about Republicans: the ability to conjure emotional reactions, the ability to frame issues simply and powerfully, and the ability to aggressively set the issues rather than responding to attacks defensively. The methods are sound, it’s the current purveyors that are corrupt.

  • Toqueville said that one of the great democratizing forces in America was a system of laws that hampered the transfer of wealth from one generation to the next. He wasn’t talking about taxes specifically, but the principle applies. When the only reason you’re rich is that your daddy was rich, and the only reason he was rich is that his daddy was rich, you have the beginnings of a very un-American caste system.

    Add that the expense of modern political campaigns turning politics into a rich person’s occupation, and bingo! Oligarchy. Which, come to think of it, would suit a certain family named Bush just fine.

  • Thomas Paine also cites heredity of wealth and position as contrary to democracy.

    If facts still have any place in the political discourse, I don’t think there’s any reason for Dems to be afraid of this fight.

    That is, unfortunately, the key, and what has been missing from political discourse for years. It is the show that matters, not the message. As long as the right can sell the idea that the estate tax will penalize poor farmers the left will lose.

    The Silver Spoon idea is great because it wraps the facts up in a pretty package that can be convincingly distributed.

  • We do, obviously, need to update and popularize the “Birth Tax”. To show you how badly it needs updating, the only number in my head at the moment is (I think) $36,000 that Bush has iimposed on every baby born since … sometime. I’m sure that number has grown remarkably since it was first proposed … somewhere. The DNC’s homepage ought to have one of those “clocks” showing the current value of the Bush’s Birth Tax.

    I do like “silver spoon tax”. Reminds me of Ann Richards’ 1988 keynoter: “Poor George, he can’t help it — he was born with a silver foot in his mouth.”

  • The trick here, as always with issues that should win for us, is to retake the spin. Calling it “the death tax” and talking about farmers losing their land causes the Republicans to win the message

    Okay, I admit to liking the Silver Spoon Tax, although I fear some may think that it is a tax on cutlery.

    An alternative could be the “Paris Tax”. Many of us would know that we were referring to the multi-millionaire Hilton heiress, but a much larger group of people might think we were trying to tax France. Imagine the GOP trying to unspin that:

    “No no no Mr. Red State denizen. We’re not repealing a tax on Paris France. We are repealing a tax on estates. No no no, “estates” is not some other city in France….”

    ahhh….the imagery…And call me crazy, but I think our bretheren in Europe would think it fantastically funny if the Dem’s succeeded in preventing the repeal of the Estate Tax by framing it this way.

  • I found an update on the $36,000 Bush Birth Tax (still all over the net at that value). It’s from Commonwealth Commonsense (which I’ve never heard of).

    Nicolas Kristof has the right framing when he talks about the burgeoning debt we are accumulating during the Bush II regime. Perhaps it is language progressives should adopt.

    President Bush has excoriated the “death tax,” as he calls the estate tax. But his profligacy will leave every American child facing a “birth tax” of about $150,000.

    There’s also a cute graphic for the Birth Tax (but using the out-of-date value) over at Daily Kos

  • I’ve resisted commenting on this thread, as I suspect that I might be the only commenter on this site that has had the great fun of completing and filing IRS Form 706, U.S. Estate Tax Return, AND defending it upon audit by the Internal Revenue Service — no, seriously, it WAS fun; maybe that explains my weird thinking when the tax code was as easy to solve for me as most jigsaw puzzles). Not that I have a whole lot of influence over others’ thinking here, but I first wanted to see what others thought. Being the ham that I am, I decided to give in to the temptation and comment.

    Iagree that the substance of this debate certainly favors retention of the Estate Tax. With the changes first enacted with the Tax Reform Act of 1986 — the first complete overhaul and rewriting of the Internal Revenue Code since 1954 — most of the onerous (I know, that is a relative term) provisions of the estate tax were either ameliorated or outright repealed. The complexities are still there, but the application became more straight-forward; for example, half of the estate could be shielded from tax at the death of the first spouse to die, without regard to his/her “contribution” to the accrual of the assets. But the design still permitted a wide “dragnet” to pull in various kinds of property rights that the decedent held, directly and indirectly, at the time of death.

    On thing that most people overlook with the estate tax is that it is designed to tax the UN-realized appreciation of assets the decedent owned at the time of death. For example, if my brother bought his home in California 30 years ago for $45,000 and when he died it was worth $845,000, then the $800,000 of appreciation in the home’s value was never taxed during his lifetime. If the estate tax is repealed completely, then that $800,000 of lifetime appreciation would NEVER be taxed.

    Why? Because right now, when the asset has to be included in the federal gross estate at its value at the time of death (or the alternate valuation date, 6 months after death), then the heirs take the property at its date of death value (i.e., at $845,000 in my example). This is called a “step-up in basis.” If the heirs later sell it at $980,000 they have a capital gain of only $135,000 (the $980,000 selling price less the “new” stepped-up basis of $845,000), instead of the ACTUAL gain of $935,000 (the selling price of $980,000 less my dead brother’s original purchase price of $45,000). Quite a good deal for the heirs — they protect most of their capital gains upon disposition; and a good deal for Uncle Sam — we get the tax revenue that would have been lost without the estate tax.

    The EVEN GREATER bad deal that will result from repeal of the estate tax? I’m not sure, but I suspect that the “step-up in basis” will still occur for the heirs, and Uncle Sam will lose both during the wealthy person’s tax on the home’s lifetime appreciation AND at their death. Not so fair, huh?

    Two other factors: (A) Part of the Tax Reform Act of 1986 was the introduction of something called the generation-skipping tax, a taxing structure designed to get at assets — or more importantly, the current income generated by those assets — that the wealth would place in trust for their benefit during their lifetimes and their heirs after death. This gets some current tax from the Paris Hiltons, the Kennedys, and other “trust fund babies.” What will happen to this tax is as yet unclear to me, but it would not surprise me if the Rethugs — with virtually NO public notice focused on it — intend to repeal this generation-skipping tax, too.

    (B) An English common-law principle (and one adopted by most American states), the “Rule Against Perpetuities,” is that property cannot be placed in trust forever, but instead the trust fund must end no later than “a life in being, plus 21 years.” In practical terms, if I set up the trust today for the benefit of my kids and their children, the trust can’t last any longer than the current age of my youngest heir, plus 21 years. (Today = 2005; youngest heir = age 22; his life expectancy is 72 years = another 50 years; plus 21 years; 2005 + 50 years + 21 years = the trust must end no later than 2076). If I have lots of grandchildren, especially babies, it’s easy to see that the trust may, in practical terms, never have to end.

    Additionally, many states have repealed the Rule Against Perpetuities — even though this was designed to tax the landed-class assets. When the Rule Against Perpetuities was being repealed, it was replaced by … da dum: the federal estate tax and the generation-skipping tax! If these taxes are now repealed, then there will be NOTHING standing in the way of passing on the family fortunes forever without the necessity of paying any taxes. What a deal!!

    P.S. Eadie and others here may be a little better at cramming all of this substance into a few easily-digestible frames and sound bites for the rubes…

    P.P.S. How about calling the estate tax the “Born On Third Base” Tax?

  • Damn you, Calling All Cars! I’ve waited all day to get home and post the Silver Spoon Tax – and ya beat me!

    The Spoon Tax is real simple and easy to remember. Next time I’m home in Alabama I’ll lay it down and see what happens….

  • Like AL, I’ve resisted writing on this topic, but for
    different reasons. I’ve begun to wonder if our fundamental
    assumption is correct: namely, that if the American
    people knew how the tax code has progressively
    favored the rich for fifty years, that they would revolt.
    I believed that all we had to do was get the message
    out, in the same clever way the Repigs do, time
    after time, besting us every single time.

    Now I’m not so sure. Really. I’m doubting my
    fundamental assumptions. I’m beginning to
    think that the American people think the estate
    tax is simply wrong, unfair, immoral, and they
    don’t give a damn that only the rich profit from
    its repeal.

    There are, of course, many more provisions in the tax code
    that favor the rich – take capital gains, for example,
    but I’m beginning to doubt my assumptions here,
    too.

    Hats off to AL for the tax lesson – I know a few
    things, too, but for a later time.

    I think Americans are a little confused. That they
    believe anyone can make a good living in America
    is the same thing as saying everyone in America
    can make a good living. They don’t realize that the
    rich will make sure that never happens. They
    don’t understand the difference, and nothing we
    can do can change that. There just ain’t a sound
    bite out there that can make that loud and clear.

    And down we go, with Americans cheering all
    the way for the rich.

  • What about the idea of taxing all income the same? It might be a bit difficult to get across, because we’re not talking about a flat rate but about taxing it on the same table, regardless of whether it’s the wages and tips that ordinary people make their money with or the dividends, capital gains, and inheritance that give the rich their money. A further complication is that the estate tax is different from an inheritance tax, but how significant is the difference?

  • (Not sure why my whole comment wouldn’t go through, but here’s the rest:)

    We need to get across the message that the Republicans’ goal is to reduce or eliminate taxes on the methods by which the rich make most of their income while maintaining (or raising, because it will be necessary to make up for the shortfall) taxes that affect workers — as well as raising and introducing other taxes that affect primarily the middle and working classes (payroll and sales taxes).

    Surely we can persuade people that this isn’t fair.

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