Sunday, June 04, 2006

Estate Tax Repeal? (For Real?)

Via Brad DeLong I was encouraged to read this story in the LA Times that the attempt to permanently repeal the Estates tax in the US is looking precarious. The report notes that "the Congressional Budget Office estimates that estate tax revenue will come to $28 billion in 2006". The mere fact that the prospect of permanently repealing the Estates tax is on the table is deeply troubling enough, and speaks volumes about the current ills of democracy in America. In particular the extent to which a few wealthy families can wield so much political power. Here are a few insights from the piece in the LA Times:

The ferocity of the fight is surprising in light of the fact that only a tiny slice of the population is affected by the tax, which applies to inheritances in excess of $2 million. Only 12,600 estates will be taxed this year, according to the Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution.

"How could a tax that's been around since 1916 that affects such a small handful of wealthy Americans be converted into such a populist issue?" asked Michael J. Graetz, a professor at Yale Law School and coauthor of a book — "Death by a Thousand Cuts" — addressing that question. "It is the genius of the proponents of repeal. They used all the modern tools available to political movements."Graetz gives the proponents credit for conducting a well-orchestrated, well-financed campaign that began in the early 1990s, when Republicans and other critics of the estate tax began calling it the "death tax" to make its elimination more politically palatable. A nonprofit group, the American Family Business Institute, was set up in 1992 for the sole purpose of advancing the cause.

A recent report by Public Citizen, a liberal watchdog group, identified 18 wealthy families who contributed to organizations promoting repeal of the estate tax. It calculated that at least 15 of those families' businesses paid $27 million since 1998 for lobbyists to promote repeal of the estate tax.Dick Patten, executive director of the American Family Business Institute, disputed the report, saying that his group's success was due less to wealthy people trying to reduce their tax bill than to businessmen and farmers who are worried that the estate tax would make it hard for them to pass on their businesses to heirs.

Supporters of the estate tax have also found allies among the well-heeled, including William H. Gates Sr. — the wealthy father of the even-wealthier Bill Gates, founder of Microsoft — who has been in the vanguard of the effort to block repeal. Proponents of the tax also have the support of the life insurance industry, which stands to lose business because it sells policies designed to reduce the impact of the tax on inherited wealth.

Let's hope the call for the estates tax repeal quickly (and permanently!) fades into the distant past.