Fat-Cat Cavalry Rides In to Rescue High Taxes

The Wall Street Journal
February 16, 2001
By Paul A. Gigot

One of Washington's myths is that politicians love to cut taxes, and only the bravest can resist. What they really love to do is spend money, which is why a major tax cut happens only once a generation.

Witness the counterattack now underway against eliminating the death tax. This was supposed to be a sure thing. George W. Bush campaigned on it, and 65 House Democrats voted for repeal last year. But with Bill Clinton promising a veto, that was a free vote. This year, when it counts, the forces of the status quo are rallying to resurrect their cash cow.

The opponents of elimination have also wised up. A year ago they played the usual class-war violins, but those were drowned out by Mr. Bush's moral applause line that a tax on dying is unfair. This year they're responding with a moral pitch of their own, namely that repeal will hurt charitable giving.

President Bush's own charity czar, John DiIulio, volunteered this claim without evidence last week. (He later sent a letter to the New York Times as penance.) And this week the nation's righteous billionaires, including Warren Buffett and George Soros, emerged from Aspen or St. Bart's to protest repeal on similar grounds.

It's certainly amusing to see liberals calling in the plutocrat cavalry to defend confiscatory taxation. They're rich enough to ride in on their private Gulf-stream jets. They're so rich that for them the death tax doesn't matter. Mr. Buffett and Paul Newman can take care of their heirs and still have the odd $1 billion to make themselves immortal by setting up tax-avoiding foundations in their own names.

Mr. Buffett even tries the ingenious trick of selling the tax as an incentive to work! He says death taxes have kept America a "meritocracy." (Question: Does the Sage of Omaha also oppose racial preferences?) But not everybody works merely to become rich themselves. Some might even do it for their children.

The people hurt by 55% death-tax rates are entrepreneurs not rich enough to be the next Rockefellers. Many own businesses they have to break up or sell merely to pay the tax. The point is more moral than economic. It's simply unjust to tax income a third time at death after it's already been taxed as earnings and again as dividends.

The good-for-charity ruse also falls apart on moral grounds. What is so superior about practicing charity by exploiting the estate-tax loophole to set up a foundation? Many foundations do good work, but many (Rockefeller) have become bureaucracies that are adjuncts of the welfare state. If public needs are so pressing now, why wait until you die to share the wealth? Ted Turner may be a megalomaniac, but at least his $1 billion gift to the United Nations came out of his own spending money.

It's possible philanthropy might even increase without an estate tax. Paul Schervish thinks so. The Boston College charity expert argues in the Chronicle of Philanthropy that giving correlates with gains in wealth, so the less money the government takes the more people will have to give.

"Doing away with the estate tax would increase not only the amount of giving, but also the quality of giving," writes Mr. Schervish, who once opposed repeal. Voluntary giving would be "more fully a work of liberty and humanitarian care, and less the windfall fruit of a convoluted tax strategy."

Those fighting repeal have their own selfish reasons in any case. A leading opponent is the Association for Advanced Life Underwriting, a.k.a. the estate-tax loophole artists who'll lose work if repeal passes. The lobby is assembling a coalition that also plans to spin the line that repeal hurts charity. It's already hired former GOP Sen. Alan Simpson.

An internal AALU memo last year implied a strategy to accept some death-tax reduction as inevitable but to fight elimination. That way they can live to loophole another day, as the tax grows back to ensnare ever more people again. The memo said "the most devastating political development" would be for the GOP to sweep the White House and Congress.

That's why it's so strange to see some Republicans now wavering on elimination. A White House spokesman says Mr. DiIulio was speaking only for himself. But economic aide Larry Lindsey raised eyebrows when he unilaterally gave away a provision on capital-gains relief contained in Mr. Bush's original repeal proposal. House tax-writers have also been saying that repeal may lose in competition with business-tax breaks.

"I want Bush to be able to keep his promise," says Washington Rep. Jennifer Dunn, who is worried about "softening" GOP support. Her pro-repeal coalition includes more than 100 groups, notably the farm and small-business folk who backed Mr. Bush in big numbers last year.

These groups won't be happy if Mr. bush settles for mere tax "relief" that even Al Gore felt obliged to support. Death-tax referendums passed overwhelmingly last year in South Dakota (80%) and Montana (68%). Mr. Bush carried both states, which also have vulnerable Democratic senators running for re-election in 2002.

Republicans have a rare chance to fulfill a campaign promise and wipe out a tax that most voters loathe. They might think of it as an act of political charity.

Please e-mail us with your comments, death tax horror stories and suggestions on-line at feedback@deathtax.com.

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