President Bush and the Senate Republicans who are trying again to eliminate the estate tax forever have some wonderful grist in Forbes magazine’s latest list of the world’s billionaires.
Among many such examples on the list, they can point to the heirs of Sam Walton and demonstrate how the estate tax undermined their well being. Sam’s widow and four children are down this year to a little more than $90 billion among them, which would only be enough to run the state of Arkansas, its colleges and medical center, health and welfare programs, prisons, 250 public school systems and everything else for only 10 years at the present rate of spending.
All right, maybe the Waltons are not the best example. But there is poor Win Paul Rockefeller, whose assets were inherited from his wonderful dad, who inherited them from his dad, who inherited them from his dad, all of whom one after the other had to pay the dreaded estate tax on their inheritance. After all those inheritance taxes, Win Paul is worth only $1.2 billion, according to Forbes. And he says he is not quite that well off.
The billionaire list is not off the point of the debate over the estate tax, which will be phased out in 2010 but will return the next year if Congress does not make the repeal permanent. The House of Representatives voted in April, for the fourth year in a row, to kill the tax forever, but the Senate, worrying about the looming megadeficits and perhaps even the appearance of once again helping the super-rich at everyone else’s expense, has balked at making the repeal permanent. Sen. Bill Frist, the majority leader, could not corral the votes last week and delayed a vote until next month.
Forbes’ list is on the point because the current and aspiring billionaires — and aspiring heirs — are the real objects of the crusade. No one flatly says so. The proponents of repeal, which include Sen. Blanche Lincoln, say it’s all about protecting the poor family farm and small family business from being taxed out of existence, the heirs having to sell the farm to pay the taxes or be left in penury when estate taxes are paid. Lincoln is proposing, as an alternative to outright repeal, just exempting farms and businesses from estate taxes.
That would not be quite fair either, but President Bush and the Republican leadership care very little about those people, who represent a tiny portion of the estates subject to the tax and of the taxes that are actually paid. A bipartisan group of senators worked out a compromise to exempt the first $8 million or $10 million from the tax and to slash the top tax rate, on the fattest estates, from 47 to 15 percent, but Bush & Co. won’t accept that either because the super-rich would still have to pay something. The goal is to abolish taxes on people with vast unearned incomes from inheritance and investments.
He is getting pretty close. Owing to the Bush tax cuts in 2001, 2002, 2003 and 2004, all personal federal taxes on wages and other earned income this year amount to an average of 23.4 percent of income. But total personal taxes on investment income — stocks, bonds, interest, etc. — are only 9.6 percent of income. If the president finally gets his way and abolishes income taxes on capital gains, that will shrink to nearly zero. Virtually all taxes would be borne by workers, which would be Bush’s perfect tax system.
Bush says the ancient estate tax is terrible because it destroys family farms and amounts to double taxation: He is fond of saying that people’s earnings are taxed while they are alive and taxed again after their death.
Neither, of course, is true. A Congressional Budget Office analysis of estate tax payments showed that no more than 27 farmers in all the United States last year passed on estates that did not have enough liquid assets to pay all estate taxes immediately. (People can take up to 14 years to pay estate taxes.) The authors thought the number might actually be zero. Only inherited assets greater than $1.5 million, $3 million for a couple, only about 1 percent of estates, are subject to taxation.
As for double taxation, the exact opposite is true. The vast majority of large estates consists of unrealized capital gains, the appreciated value of stocks and other investments. Income from appreciated value is not taxed until the asset is sold. If it is not taxed at inheritance, it is never taxed because the value when the property is transferred to the heir becomes its base value for future tax purposes.
Thirty-five years ago, the nation was shocked to learn the number of multimillionaires who did not pay a dime of income taxes, which led to the enactment of the alternative minimum tax. Someday, after the estate tax is gone, someone will report the hundreds of billions of completely untaxed income enjoyed by millionaires and billionaires and Congress will rush to pass an inheritance tax again.