TCS Daily

The Vulture Tax

By Stephen Moore - May 20, 2005 12:00 AM

For the first time in decades, Republicans in Congress have an opportunity to entirely repeal a federal tax -- squish it like a bug. We are speaking of the death tax, which has been around for about 90 years and now could finally be permanently banished. This would be an enormous victory for the economy -- as the confiscatory death tax is a job destroyer and a wrecker of family businesses. Politically, this would also be a huge coup for Republicans if they can prevail, as death tax repeal has been one of the GOP's signature promises.

One reason for confidence is that the House recently passed H.R. 8, repealing the federal estate tax on a solid vote of 272-162. More than 40 Democrats voted with the Republicans for repeal in 2010.

Some readers may be surprised that this issue is still being debated, as the Republicans claimed to have won on death tax repeal back in 2001. But that victory turned out to be mostly symbolic, as the bill repealed the death tax in 2010 and then reestablished the tax in 2011. This current bill would drive a stake through the heart of the death tax so that after 2010 the tax would be forever gone.

Winning in the Senate won't be easy. In the last two Congresses, victory has been repelled by Senate Democrats' use of the filibuster. To overcome this blocking action, Republicans have needed 60 votes and they keep coming up a few short.

That obstructionist strategy has come at a high political price for the Democrats. Last year the American Family Business Institute ran TV and radio ads against then-Senate Minority Leader Tom Daschle of South Dakota. This ad campaign educated voters about Mr. Daschle's votes against killing the death tax -- in a state where about 3 of 4 voters want the death tax extinguished. Daschle lost, of course, and the death tax campaign clearly contributed to his historic demise.

Many Democrats say that we "can't afford to eliminate the death tax" because of high budget deficits. This excuse is squirrelly, because the tax only raises about 1 to 2% of all federal tax revenues. It is fiscally irrelevant in the grand scheme of things.

What is clear then is that the Democrats' emotional attachment to this tax is purely a result of the basest of motivations: greed, envy, and a hostility to wealth creation.

This is the underlying message of one anti-death tax repeal group called Responsible Wealth, largely funded by super-wealthy Americans who have hid their wealth in trusts and foundations, and thus don't pay the death tax themselves, but want small farmers, ranchers and successful businessmen to pay the tax.

Many Democrats and liberal pundits remain convinced that inheritance is in some way morally tainted, and that estates should be confiscated to largely "level the playing field." But the myth of the idle rich has long been debunked, with bestsellers like The Millionaire Next Door, revealing that nearly all millionaires are frugal, hard-working Americans.

The death tax penalizes virtue and rewards vice. For those who save and create wealth so they can leave money to their children, the IRS robs them at death. For those who spend down their wealth on a lavish and ostentatious lifestyle, there is no tax. The best way to avoid the death tax is to die broke and leave nothing for posterity! Is that what liberals really mean by tax fairness?

Senator Jon Kyl, the superbly talented Republican from Arizona, says that he may be willing to cut a deal with the Democrats, but only if they agree to a 15% capital gains tax applied to estates, and not one percentage point higher. He's right to draw a clear line in the sand. Democrats have offered up a plan that would "carve out" family businesses from the estate tax, but Dick Patten of the AFBI, characterizes this compromise as "a scam." He says that more than half of family businesses wouldn't qualify. Moreover, the death tax is unfair to all Americans -- whether they have an estate of $10 million or one of $10 billion. The Democrats' plan makes about as much sense as eliminating the cancer cells in a patient except for a few.

Republicans must reject any plan that retains the confiscatory 55% tax rate -- period.

Senator Jeff Sessions of Alabama has introduced the best repeal bill of all. It would eliminate the death tax permanently -- and immediately this year. The logic here is that if the death tax is profoundly unfair and anti-growth, why wait five years to pull it out by the roots. A Senate vote on the Sessions bill would bring the weight of public opinion to bear on Democrat wafflers, especially if the White House weighs in to raise the public profile of the issue.

This week the Free Enterprise Fund is partnering with the AFBI to roll out a targeted television advertising campaign to solidify waffling Democratic support and to move the one or two additional Democrats needed. The campaign, which will run for two weeks, centers on the moral wrong of imposing a punitive tax on the members of the Greatest Generation. The ad notes that scores of World War II veterans are dying every day. Their families can't wait till 2010 for death tax repeal.

Our Founding Founders considered seizing estates so pernicious that they included a provision in the Constitution that forbids it as a penalty for treason. It is time to stop applying this confiscatory tax to people whose only crime is achieving the American Dream.

Stephen Moore is President of the Free Enterprise Fund.



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