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Ending the Estate Tax: Are the Rich Getting Poorer?

By Doug Trapp · February 22nd, 2001 · Burning Questions
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Where does a "compassionate conservative" direct his compassion? President George W. Bush saves his for the wealthiest 2 percent of Americans.

Bush's proposed $1.6 trillion tax cut gives something to everyone, particularly middle- and upper-middle-class families. But his call to repeal the estate tax -- which represents $236.2 billion of his tax cut and one percent of the federal budget -- would benefit only the wealthiest, because they are the 2 percent who pay the tax.

Opponents of the estate tax -- Republicans call it the "death tax" -- say it's unfair because it punishes those who succeed, sometimes forcing the children of farmers and small business owners to sell family enterprises to cover the tax. Supporters of the tax, paradoxically including some of the wealthiest people in the country, say it encourages charitable giving and creates a more level American playing field, forcing each generation to be successful.

Anyone with less than $675,000 in assets pays no estate tax. Anyone who dies with more than that pays 37 percent, which increases gradually to 55 percent on estates of $5 million. The $675,000 exemption increases to $1 million by 2006.

U.S. Rep. Steve Chabot (R-Cincinnati), says the estate tax is unfair because those who pay it have already paid relatively high annual taxes for years.

"I just think it's wrong that the federal government can take up to 55 percent of what a person has when they die," Chabot says. "They should be able to turn it over to their children."

Last year a majority of Congress, including Chabot and Rob Portman (R-Terrace Park), voted to repeal the estate tax, as did Sen.

Mike DeWine (R-Ohio ). But President Clinton vetoed the measure, and Congress failed by 14 votes to override the veto.

But is this tax squeezing farmers any harder than, say, the growth of corporate-owned mega-farms? And if it is affecting farmers so much, why not just exempt them from the tax? Because, Chabot says, it's not the government's role to give an advantage to one group over another.

For each tax dollar collected, Chabot says, an additional 65 cents ends up in the pockets of lawyers, accountants and other financial experts who advise the wealthy on how to avoid taxes. The tax impact is harder on those who can't afford the best advice, according to Chabot. Most of Chabot's information seems to come from the Heritage Foundation, a conservative think tank.

William Gale, a fellow in economic studies at the liberal Brookings Institution, says repealing the estate tax, like the rest of Bush's tax cut, makes little sense, considering who will benefit. By 2011, according to Gale's math, half of the benefits of Bush's tax cut will go to the wealthiest 5 percent of American households. The estate tax does not affect most farms. In 1997, for example, farm assets were reported on less than 6 percent of all taxable estates.

Gale also asks how Bush can deliver on all his spending promises. The projected budget surplus is only enough to pay for the tax cut, Social Security and Medicare. But Bush has also promised prescription-drug benefits to senior citizens, pay raises for the military and education reform.

More than 150 business and philanthropic leaders issued a statement Feb. 13 basically agreeing with Gale. The coalition of investors, business people and affluent Americans, operating under the name Responsible Wealth, includes William H. Gates Sr., who heads his son's foundation; members of the Rockefeller family; and billionaire investor George Soros. The group says heredity shouldn't determine economic success. Maybe small farms and businesses should receive higher exemptions, but that shouldn't lead Congress to toss out the entire tax, the group says.

To contact Steve Chabot, visit his Web site at www.house.gov/chabot or call 513-684-2723. For Rob Portman, visit www.house.gov/portman, send e-mail to Portmail@mail.house.gov or call 513-791-0381. For Sen. Mike DeWine, visit www.senate.gov/~dewine or call 513-763-8260.

For more information about the estate tax, visit the Brookings Institution's site at www.brook.edu, the American Heritage Foundation's site at www.heritage.org or Responsible Wealth's site at www.responsiblewealth.org.

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