Last month the Republican Congress nearly managed to wipe out the inheritance
tax -- which Republicans call the "death tax," as if it were a severance tax on
departures, rather than an income tax on inheritors.
I have never been able to understand why, if we're going to tax income at all,
we should consider inheritance income exempt. But last week a friend passed on
an email from a friend that comes as close as anything I've seen to explaining
the emotion, if not the logic, behind axing the inheritance tax. Here is the
wail of the Angry Benefactor:
"I've worked hard for the past 40 years to build an estate. Every cent in it I
earned, paid taxes from 42-60% on, saved or invested. Unless I practice truly
bizarre estate planning, most of my estate will be reduced by an additional
"I make $10,000,000 through my hard work, risk-taking and intelligence, with no
help -- just barriers -- from the government. I pay somewhere between
$4,200,000 and $6,000,000 in taxes upon earning that money. Let's say I net
$5,000,000. When I die, this hard-earned after-tax property of mine is further
reduced by the death tax of $2,750,000. So my children receive $2,250,000.
This punitive and unfair tax cannot be justified unless we are going to give
Socialism another chance to ruin a country."
Well, OK, I hear the frustration there, the sense of injustice. I can work up
sympathy for a lifetime spent playing an unpleasant game in which winning is
defined as passing on to your children the largest possible number of dollars,
many of them earned through draining work that keeps one away from one's
children. Then along comes the government at the end of play and knocks down
But maddening only from a narrow focus on one life, one set of children, and one
ardent need to feel good about oneself. There is a larger picture.
For example, I would be more sympathetic to Angry Benefactor if he had at least
acknowledged the existence of parents who also work hard but haven't a prayer of
accumulating a taxable estate. That means 98 percent of the people around him,
whose children must somehow make their own way in life.
Mr. Benefactor also exaggerated his facts in a way guaranteed to whip up his
anger. The average inheritance tax rate after exemptions and deductions is not
55 percent (which is the top marginal rate), but 17 percent, less than the rest
of us pay in income tax.
Furthermore the benefactor surely knew that the first $675,000 of his estate can
go to his children tax-free. That number will rise over the next few years to
$1 million. If he's worked 40 years, those "children" are in their 40s or
older. Their industrious and successful parent probably provided them with the
best education and other boosts in life that money can buy. He might ask
himself how much they really need, and whether he wants to deprive them of the
pleasure he obviously takes in being able to say of his estate, "Every cent in
it I earned."
I would also question the literal truth of that statement. An accumulation of
$5 million has almost certainly grown at least partially through the swelling of
investments for which he might have taken risks, but did no work. Whatever he
has earned from capital gains has never been taxed at all.
To pass it on to heirs as untaxed income is doubly unfair to middle-income
wage-earners. Unfair first because they pay double tax -- income and payroll --
on every penny of their income, while high wage-earners are largely exempt and
interest-earners totally exempt from payroll tax. Unfair second because, if the
rich escape paying for government services, either the non-rich will have to pay
more or the services will disappear. At present the estate tax contributes $27
billion a year to the federal budget. Raising that much from the bottom half of
all taxpayers would double their tax rate.
Angry Benefactor might think it just fine to reduce government services, given
his assessment of government. "No help -- just barriers." Again, I partially
sympathize. I've been infuriated by government barriers myself. But let's tell
the whole truth here. We are all helped immeasurably by government, especially
the privileged among us. Consider, for example, federal research support,
export subsidies, wars to maintain our flows of oil, patent protection,
university support, the construction of roads and harbors and airports, the
preservation of law and order. It is inaccurate reporting, poor sportsmanship
and lousy citizenship to issue blanket complaints about government as an excuse
for refusing to pay your share.
Angry Benefactor mentioned "truly bizarre estate planning," but there are many
ways to avoid estate tax by directing the taxable part of his fortune to a
charity of his choice. About $14 billion goes to charities each year that way.
All of them, from churches to universities to conservation groups to museums,
quake at the thought of repealing the inheritance tax. For society as a whole
it is a far better game to play to provide well for one's children and then pass
on the excess to help other people's children.
After the Republican House and Senate gleefully passed the bill eliminating the
inheritance tax, the Democratic president vetoed it. For now it is still with
us. That could be a good argument for continuing to have a Democratic or Green
president. Or an even better argument for having a Democratic House and Senate.