The Merit in Estate Tax

- Carolyn Lochhead
Monday, February 26, 2001

WHO CANNOT SYMPATHIZE when Warren Buffett, George Soros and William Gates Sr. plead for meritocracy?

These meritocrats, in a stunning act of noblesse oblige, have banded together in a club called Responsible Wealth, "a national network of business people, investors and affluent Americans," to halt the proposed repeal of the estate tax.

In this, as in everything these meritocrats do, they have been spectacularly successful. In the few days since they advertised against estate tax repeal in the New York Times, the repeal movement has suddenly lost much of its steam on Capitol Hill.

The billionaires, who understate things slightly when they call themselves "affluent Americans," are backed by another noble band: insurance companies, underwriters, estate lawyers and charities, all of whom are big fans of the estate tax, which tops out at 55 percent of inheritances, with a $675,000 exemption set to rise to $1 million in 2006.

Calling themselves Americans for Sensible Estate Tax Solutions, they hired former GOP Sen. Alan Simpson to argue that without the estate tax, "the kids are going to say, 'Dad, don't give the Picasso to the Met.' "

William Gates Sr., a kind of reverse heir whose software-king son made his life cushy -- without even dying at that -- is leading the new social cause. He says the estate tax is essential because it "has provided the very wealthy with a powerful incentive for charitable giving."

Since Gates Sr. co-chairs the $20 billion Bill and Melinda Gates Foundation,

perhaps he is saying the foundation would not exist had his son not been compelled to give some of his billions to his own causes under threat of giving it to the government's instead.

Forbes Magazine pegs Bill Gates Jr.'s wealth at $68 billion, Warren Buffett's at $28 billion and Soros' at a paltry $5 billion. It is safe to assume that all three will leave billions behind even if they pay the 55 percent tax, which is unlikely.

Just to put their sacrifice in perspective, one of those leftover billions equals 1,000 million, which is more millions than most Joes or Janes on the humble streets where billionaires seldom tread could spend if they tried.

It is also safe to say that Microsoft Corp. will not be dismantled upon Gates Jr.'s death to pay estate taxes, assuming it is not dismantled under court order for a landmark antitrust judgment.

The same cannot be said for farmers in Marin County who haven't yet sold out to responsible billionaires looking for choice mansion sites. Or independent hardware stores in Contra Costa County not yet obliterated by Home Depot. Or the surviving half of a gay couple in the pricey Bay Area housing market who doesn't get the spousal exemption and pays the estate tax to remain in the house he shared with his partner.

Most of these people don't have Picassos to worry about. Nor do they have back-up billions to keep their families in private jets and tropical islands until the end of time. Nor do they have corporate empires that will endure even humongous antitrust verdicts.

The billionaires argue that concerns about small businesses and farms are "part of a campaign of misinformation" by estate-tax critics.

Such concerns may indeed not find much sympathy with Warren Buffett, who buys stock by the block, or Gates, who buys startups by the dozen, or Soros, who bundles his Swiss francs.

For tax purposes, the government values a small business at a multiple of its annual revenues on the owner's death. That means its heirs can face a tax several times larger than the business's annual revenue stream. Tobacco companies may be able to afford this, but a lot of small businesses get liquidated.

But the responsible billionaires apparently have not completely lost touch with the reality of their own human frailty. So they beg Congress to force them to give to charity.

So why not take them at their word and tax billionaires at 100 percent? Forbes estimates the combined assets of the 400 richest Americans at $1.2 trillion. That should take care of the $28 billion in annual estate tax revenue for about 40 years.

E-mail for Carolyn Lochhead is clochhead@sfchronicle.com

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