The cost of democracy

Newt Gingrich Republicanism is not dead. Last month the Republican-controlled House of Representatives passed a bill that would eliminate the estate, or inheritance, tax. Fortunately, the chances of the bill becoming law are slim. It is unclear what the Senate will do, and President Bill Clinton has vowed to veto the bill should it get to his desk later this year. Still, the issue had enough political potency to attract the votes of sixty-five Democrats, and George W. Bush, the presumptive Republican candidate for president, strongly supports the effort to end what so-called reformers call the "death" tax. It says something troubling about the state of our politics that inheritance taxes, in many ways the symbolic linchpin of the very idea of progressive taxation, are now under concerted attack. Repealing the estate tax is an idea that should be resisted on political, fiscal, and moral grounds. More than money is at stake.

Those urging that the tax be abolished argue that the dead shouldn’t be taxed and that, moreover, the assets involved have previously been taxed as income. They like to complain of double or even triple taxation. Abolitionists further contend that estate taxes place a debilitating burden on those who wish to pass on family farms or businesses to their children.

None of these objections bears up under scrutiny. First, the tax is not levied on the dead but on their estates and thereby on their heirs. In other words, those who receive the windfall, not those who earned the money, are the real object of the tax. If we want a tax system designed to reward work-as critics of "handouts" to the poor never tire of saying-taxing large "gifts" makes sense. Inheritance taxes shouldn’t be confiscatory, but neither should the cries of penury from beneficiaries be taken at face value.

Second, most of the assets subject to the estate tax come in the form of unrealized capital gains and tax-exempt bonds. Usually, neither of these forms of wealth has been taxed before.

Finally, the current law already makes ample provision for alleviating the tax burden of those inheriting family farms or businesses. Only 1 percent of the inheritance tax is collected from family farms, and less than 1 percent from family businesses. Perhaps the law should be reformed to lighten the burden on farmers and small businesses even more-a bill offered by the Democrats to do precisely that was defeated-but the idea that the estate tax is depriving people of their heritage and livelihood is false.

The truth of the matter is that only the very wealthiest pay estate taxes. Americans can inherit $675,000 from each parent (or anyone else) without paying any tax at all. The figure will soon rise to $1 million. Only the wealthiest 2 percent of Americans face inheritance taxes, and that means only the wealthiest will benefit from the tax’s repeal. According to the Wall Street Journal’s Albert Hunt, 2,400 estates paid nearly half of all estate taxes in 1997. Repealing the tax would result in these heirs getting average tax breaks of $3.4 million. These are not marginal business people or farmers struggling just to get by.

Worse, repealing the tax would deprive the government of $50 billion a year in revenue. That money will have to be made up somehow-current revenue surpluses will not continue indefinitely-and that means that those less able to pay will be asked to pay more at a time when the well-off have never had it so good.

Americans believe that those who work hard and succeed should be rewarded. The opportunity to get rich is understood to be a kind of American birthright, and countless immigrants have come to this country seeking such opportunities while fleeing systems of inherited wealth and power. Enormous concentrations of wealth can easily foreclose on that birthright. A progressive tax system insures that those who have benefited most from this nation’s freedoms contribute their proportionate share to keep opportunity available for those who come after them. Income inequality in the United States is already at scandalous rates and threatens to increase. Repealing the estate tax would exacerbate that trend.

Even more important, a progressive tax system is a fundamental principle of democracy. Great concentrations of wealth, especially when money is the lifeblood of political campaigns, fatally distort the democratic process itself. Power in the hands of only a few places the levers of government too far from the mass of people. As the siren call of "prosperity" comes to dominate political discourse, too little attention is being paid to the egalitarian premises and unfulfilled hopes of American democracy. When a candidate from one of the nation’s two principal political parties advocates what amounts to the repeal of progressive taxation, citizens should pay close attention. It’s not just our wallets that are at risk.

Published in the 2000-06-14 issue: 
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