Today's post is from Bill Gates, Sr. is a retired Seattle attorney and author of Showing Up for Life, and Chuck Collins, co-founder of Wealth for the Common Good. They are co-authors of Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes. This piece was originally syndicated on Minuteman Media.
A century ago, President Theodore Roosevelt expressed alarm about the dangerous concentration of wealth and power in the U.S., and called on the incoming 60th Congress to establish a federal estate tax on large fortunes. Its primary objective, Roosevelt said, “should be to put a constantly increasing burden on the inheritance of those swollen fortunes which it is certainly of no benefit to this country to perpetuate."
One hundred years later, after a 12-year assault, the federal estate tax is here to stay. The anti-tax organizations and wealthy families that spent millions in lobbying funds to avoid paying billions in taxes have conceded they don't have the congressional votes to abolish the tax. But that doesn't mean they'll stop trying to erode it.
In fact, Congress must act in the next month to discourage a year of mysterious deaths in affluent households and prevent further deterioration of the nation's fiscal situation. Bush-era tax cuts suspended the estate tax in its entirety for the year 2010, creating a bizarre incentive for wealthy people to prematurely die. Then, in 2011, the estate tax reverts back to its 2001 rules. A one-year patch is needed-- if not permanent reform-- to avert this fiscally and morally problematic scenario.
With health care dominating the political calendar, Congress may not have the bandwidth to engage in a robust debate about the future of estate tax, but inaction isn't an option. There's a serious risk that estate tax opponents will attempt to permanently gut the law further, enabling additional loopholes for wealthy families.
The current estate tax generously exempts the first $3.5 million of a person's estate and $7 million for a couple. One option before Congress is to freeze the tax at these 2009 levels and index it to inflation. Other options include establishing a progressive rate structure so that smaller estates pay lower rates, while larger estates-- those with over $50 million-- pay higher rates. Whatever Congress does, it shouldn't dilute the tax from its 2009 level.
The facts are clear: The estate tax raises substantial revenue from those with the greatest capacity to pay. Abolishing the estate tax would cost more than $1 trillion over the next two decades. There are only three ways to fill that shortfall: cut spending, raise taxes on the middle class, or, the current favorite: pile it onto the national debt.
Instead of leaving a prodigious national debt for our children and grandchildren, we should retain a robust estate tax, avoid the unprecedented interest costs of that debt, and make long overdue investments in education and job creation.
The myths have now been exposed: the estate tax hasn't put family farms out of existence, nor destroyed family businesses. At current levels, the tax is paid exclusively by the heirs of multimillionaires and billionaires. It affects only one in every 500 estates across the country.
A prudent estate tax policy won't happen unless we change our attitude about taxing inheritances. No one accumulates a fortune without the help of our society's investments. The moral justification for an estate tax is that some of us have disproportionately benefited from the fertile economic soil we have cultivated together.
How many billionaires land on the Forbes 400 list courtesy of our technological and scientific commons, including the Internet, airwaves, biotechnology, and mechanical advances? How much wealth would exist without America's unique property rights protections, public infrastructure, and academic institutions?
The estate tax should be celebrated as an “economic opportunity recycling" program. A progressive estate tax serves as an intergenerational pact between the wealthy at the end of their lives and the next generation, who may not be born wealthy. Previous generations made investments for us and it is our turn to pass on the gift.