Taxes Everlasting
Why the superrich don't mind the death tax.

Thursday, June 8, 2006 12:01 a.m. EDT

If you've followed the death tax debate, you know that few issues raise liberal blood pressure more. Liberal journalists in particular are around the bend: How in the world can the public support repealing a tax that most Americans will never pay? Good question, so let us try to answer.

Americans favor repealing the death tax not because they think it will help them directly. They're more principled than that. Two-thirds of the public wants to repeal it because they think taxing a lifetime of thrift due to the accident of death is unfair, and even immoral. They also understand that the really rich won't pay the tax anyway because they hire lawyers to avoid it.

For proof that they're right, they need only watch the current debate. The superrich or their kin--such as Bill Gates Sr. and Warren Buffett--are some of the loudest voices opposing repeal. Yet they are able to shelter their own vast wealth by creating foundations or via other crafty estate planning. Edward McCaffery, an estate tax expert at USC Law School, argues that "if breaking up large concentrations of wealth is the intention of the death tax, then it is a miserable failure."

Do the Kennedys or Rockefellers look any poorer from the existence of a tax first created in 1917? The real people who pay the levy are the thrifty middle class and entrepreneurs who've built up a modest nest egg or business and are hit by a 46% tax rate when they die. Americans want family businesses, ranches, farms and other assets to be passed from one generation to the next. Yet the U.S. has one of the highest death tax rates in the world.





By far the largest supporter of preserving the death tax is the life insurance lobby, which could lose billions of dollars from policies written to avoid the tax. The Los Angeles Times reported this week that the insurance industry is the main funder of an anti-repeal outfit known as the Coalition for America's Priorities. A Coalition ad features a sound-alike of heiress Paris Hilton praising the Senate as "like awesome" for cutting her family's taxes. But this is the opposite of the truth. The American Family Business Institute has found that the bulk of the Hilton estate has long been sheltered from the IRS in tax- free trusts.
Frank Keating, president of the American Council of Life Insurers, has criticized repeal by saying: "I am institutionally and intestinally against huge blocs of inherited wealth. I don't think we need the Viscount of Enron or the Duke of Microsoft." But while he was Oklahoma Governor in the 1990s, Mr. Keating took a different line: "I believe death taxes are un-American. They are rooted in the failed collectivist schemes of the past and have no place in a society that values entrepreneurship, work, saving, and families." We can appreciate how such a marked change of views would give Mr. Keating intestinal issues.

Which brings us back to the political paradox that, even with Republicans at a low ebb, voters still support death tax repeal. A majority in both houses of Congress also supports it, so Senate Democrats can stop repeal only with the procedural dodge of a filibuster. Even at that, several Democrats are clamoring for a compromise that would take the issue off the table in November. They recall what happened in 2004 to Tom Daschle in South Dakota.

But Republicans should accept a compromise only if it lowers the death tax rate enough (to 15%) to reduce the incentive for avoidance and eliminate its punitive nature. Voters have been saying clearly and for years that they don't want a tax whose only justification is government greed and envy.