Economic Chance and Estate Taxes
Proposals to repeal the estate tax come wrapped in paradoxical symbolism. The poster children are family farmers who purportedly cannot pass their farms along to their children. The symbolism is poignant, but the economic system conjured up, one of equal economic opportunity, is being destroyed not by estate taxes but by vast concentrations of wealth and power.
Unlike several European nations, the United States does not tax wealth. Even its estate taxation is modest. Under current law, a husband and wife can bequeath more than $1 million to their heirs without facing estate taxes, and in the course of a normal lifetime can give hundreds of thousands more in yearly transfers of up to $20,000. Estate taxes now are paid only by the wealthiest 2 percent of all estates.
The attack on estate taxes comes at an untimely moment. Edward Wolff, an economist who studies trends in wealth, reports that between 1983 and 1998, the net worth of the top one percent of households increased by 42 percent, while the bottom 40 percent saw a 76 percent decline. Reductions in capital gains and income taxes along with attacks on labor unions and corporate oriented trade policies have increased economic disparities.
With low estate taxation, reductions in capital gains taxes, and numerous exemptions from corporate taxes, an increasing share of the tax burden takes the form of social security and income taxes. With wealth and income stagnant or worse for so much of the population over so long a period, it is not surprising that tax revolts dominate our politics. Unfortunately, further reductions in estate taxes promise only to make things worse.
Prevailing disparities in wealth and income need to be placed in a broader social context. Economic misfortune often deprives citizens of health care coverage, homes in neighborhoods with good schools, a reliable car, and access to a college education and affordable credit.
The dangerous contradiction of American life is that just as inequality0grows, indiscriminate tax revolts deprive society of the resources to build the social infrastructure that would make inequalities less intolerable. It would matter far less that that the average Fortune 500 CEO now makes hundreds of times the income of his lowest level worker if those workers could avail themselves of free health care, mass transit, affordable housing and free post- secondary education.
Seen against this backdrop, the wistful lament that estate taxes are destroying parents' ability to leave a modest business to their heirs is misleading or outright deceptive. Farms are becoming more large scale. Nonetheless, repeal of the estate tax will only exacerbate such trends. Chuck Hassebrook of the Center for Rural Affairs points out that estate tax repeal will "pave the way for greater concentration of wealth in farming."
Those who inherit large farms debt free have an advantage over first-time farmers in acquiring necessary skills and the credit for additional purchases. Over the long run, as Marty Strange pointed out in a classic work on family farming, consolidation in agriculture has been driven by federal policy. But the laws he cites are tax write-offs for high tech, capital intensive agriculture and government research priorities directed toward corporate agriculture -- often despite its social and ecological costs.
If we wish to reconcile broad economic opportunity with the widespread desire to convey the fruits of our labors to our children, we must assure that the tools to create future wealth are available to all. Massive inequalities, and the need to tax wealth at death, would not be so prevalent if all workers could retain the fruits of their labors. Giving workers an adequate and inflation adjusted minimum wage along with effective rights to organize would help ensure that wages keep pace with gains in worker productivity, a standard seldom attained in the last two decades.
Since wealth and income also reflects not only skills and effort, but often some degree of luck and social support as well, some modest annual taxation of wealth would also be appropriate. A wealth tax like Switzerland's, ranging from .05 percent of net wealth above $100,000 to .3 percent on net wealth over $1 million could raise well over $50 billion. The health and education of future generations should not depend on the sporadic and unpredictable generosity of the very wealthy. Modest wealth taxation and equitable protection of labor rights do not penalize wealth. These policies do implicitly acknowledge that wealth depends on more than the skills and effort of the wealthy. Al Gore may not have created the Internet, but neither did Bill Gates. Without employee efforts and ongoing social investments in education and technology, none of the dot com millionaire fortunes would have been possible.
©2000 Bangor Daily News