Items related to Wealth and Our Commonwealth: Why America Should Tax...
The'Man Bites Dog' story of over 1,000 highnet- worth individuals who rose up to protest the repeal of the estate tax made headlines everywhere last year. Central to the organization of what Newsweek tagged the 'billionaire backlash' were two visionaries: Bill Gates, Sr., cochair of the Bill and Melinda Gates Foundation, the largest foundation on earth, and Chuck Collins, cofounder of United for a Fair Economy and Responsible Wealth, and the great-grandson of meat packer Oscar Mayer who gave away his substantial inheritance at the age of twenty-six.
Gates and Collins argue that individual wealth is a product not only of hard work and smart choices but of the society that provides the fertile soil for success. They don't subscribe to the'Great Man' theory of wealth creation but contend that society's investments, such as economic development, education, health care, and property rights protection, all contribute to any individual's good fortune. With the repeal proposed by the Bush administration, we might be facing the future that Teddy Roosevelt feared-where huge fortunes amassed and untaxed would evolve into a dangerous and permanent aristocracy. Repeal would drop federal revenues $294 billion in the first 10 years; 27 some $750 billion would be lost in the second decade, not to mention that the U.S. Treasury estimates that charitable contributions would drop by $6 billion a year.
But what about all those modest families that would lose the farm? Gates and Collins expose the fallacy of this argument, pointing out that this is largely a myth and that the very same lobbies and politicians who are crying'cows' have opposed other legislation that would actually have helped small farmers. Weaving in personal narratives, history, and plenty of solid economic sense, Gates and Collins make a sound and compelling case for tax reform, not repeal.
Gates and Collins argue that individual wealth is a product not only of hard work and smart choices but of the society that provides the fertile soil for success. They don't subscribe to the'Great Man' theory of wealth creation but contend that society's investments, such as economic development, education, health care, and property rights protection, all contribute to any individual's good fortune. With the repeal proposed by the Bush administration, we might be facing the future that Teddy Roosevelt feared-where huge fortunes amassed and untaxed would evolve into a dangerous and permanent aristocracy. Repeal would drop federal revenues $294 billion in the first 10 years; 27 some $750 billion would be lost in the second decade, not to mention that the U.S. Treasury estimates that charitable contributions would drop by $6 billion a year.
But what about all those modest families that would lose the farm? Gates and Collins expose the fallacy of this argument, pointing out that this is largely a myth and that the very same lobbies and politicians who are crying'cows' have opposed other legislation that would actually have helped small farmers. Weaving in personal narratives, history, and plenty of solid economic sense, Gates and Collins make a sound and compelling case for tax reform, not repeal.
"synopsis" may belong to another edition of this title.
About the Author:
William H Gates Sr. is the co-chair of the Bill and Melinda Gates Foundation in Seattle. He serves as trustee for a number of Northwest and national organizations, including the national board of United Way.
Chuck Collins is the cofounder and program director of the Boston-based United for a Fair Economy and Responsible Wealth (www.responsiblewealth.org). He is coauthor of several books about economic inequality, including Economic Aparthied in America: A Primer on Economic Inequality and Insecurity.
Paul Volcker is former chairman of the Board of Governors of the Federal Reserve System.
From the Trade Paperback edition.
Excerpt. © Reprinted by permission. All rights reserved.:
Chuck Collins is the cofounder and program director of the Boston-based United for a Fair Economy and Responsible Wealth (www.responsiblewealth.org). He is coauthor of several books about economic inequality, including Economic Aparthied in America: A Primer on Economic Inequality and Insecurity.
Paul Volcker is former chairman of the Board of Governors of the Federal Reserve System.
From the Trade Paperback edition.
Foreword
Paul A. Volcker
I didn"t get it last year. I still don"t get it. Why, right now, in the aftermath of
the greatest burst of paper wealth creation in all of American history (in all of
history for all I know), in the midst of growing concern (even alarm) about the
growing disparity of wealth and income in the United States, right in the face
of increasing pressures on the federal budget, has there been so much effort
to abolish the estate tax?
Reform—long overdue—I can understand. But total elimination of a tax
broadly accepted as a reasonable part of our revenue system for close to a
century is quite another thing. Of course, no one likes to pay taxes when
alive, or at the expense of potential heirs, after death. But I think we all
recognize, liberal or conservative, rich or poor, that some taxes, like death
itself, are inevitable. The unavoidable fact is that government has certain
responsibilities. The discharge of those responsibilities costs money.
We can, we should, and we endlessly do debate just how far those
governmental responsibilities should extend, and how much we should
spend. We should also be careful about how we tax. We want to minimize
adverse effects on incentives. We should be watchful about distorting
economic activity in ways that reduce efficiency, productivity, and growth.
What we can"t escape is a simple piece of logic. Once we agree on total
expenditures and revenues, if we lose one existing source of revenue—say
for the federal estate tax—we will have to find a replacement. That will
become harder and harder to do a few years ahead, when estate tax
revenues will likely increase rapidly, reflecting the enormous rise in wealth
during the 1980s and 1990s. It"s hard for me—hard in terms of economic
analysis—to think of practical alternatives with fewer adverse effects than a
(reformed) estate tax.
Consider the main possibilities. More points on the income tax, directly
contrary to "supply-side" theorizing? New sales or value-added taxes,
regressive in their impact on already skewed incomes? Even if we succeed,
right against the current trend, in reducing total spending and revenue needs,
we would still have to choose among various taxes. Quite apart from
questions of political practicality, we would be hard-pressed to find evidence
that, compared with the alternatives, a reasonable estate tax significantly
discourages work effort or innovation or savings. I realize much more is at
stake than these calculations of the "dismal science" of economics.
In Wealth and Our Commonwealth, Bill Gates Sr. and Chuck Collins
appeal to one of the more treasured and persistent strains in the uniquely
American experience. From the days of our founding fathers, through
Democratic and Republican administrations, among conservatives and
liberals alike, the concept of equality of opportunity and dispersion of wealth
and economic power has been a part of the American psyche. The
inheritance of huge fortunes, far beyond any reasonable need for education,
for medical care, and for a comfortable—even luxurious—standard of living
has never rested easily with that political philosophy.
Of course, money is not the only measure of real wealth and opportunity,
and perhaps not the most important. Moreover, some monetary measure of
equality at the starting gate of life will never be achieved, certainly not by
taxation, and it wouldn"t make sense to try. But surely, as the authors so
eloquently set out, our traditional values—our moral values—should weigh
heavily, in fact conclusively, on the side of some tax on exceptionally large
estates.
Plainly, the act hastily passed last year, with a sudden phaseout in 2010
only to be reversed the following year, doesn"t make sense. Black humor
about the incentives to keep grandma on the respirator until the turn of the
year is only a macabre exaggeration of the enormous complications for
rational estate planning of the existing law. The added burdens implicit for
strained state budgets is only one of the poorly foreseen "side effects."
The time has come for real reform, sustainable reform, that deals with
outdated and unnecessarily intrusive elements of the old and new laws. For
one thing, we ought to take account of inflation and the rising levels of real
wealth. Gates and Collins rightly suggest the old six-hundred-thousand-dollar
and the current million-dollar exemptions are too low. A swath of families that
today would be considered among the reasonably affluent rather than the
exceptionally wealthy are affected. Similarly the annual allowances for
individual tax-free gifts, now eleven thousand dollars, could be raised
significantly. The purported adverse impact on family farms and small family
business—which Gates and Collins convincingly document as enormously
exaggerated by propagandists for the end of "death taxes"—could be
practically eliminated.
But by all means let"s keep the tax on truly huge fortunes. Even then, no
one would be forced to pay over any of his or her estate to government
against his or her wishes. Instead, an exemption for charitable institutions
provides other avenues for satisfying personal and community objectives.
This book sets out one reasonable approach toward reform. No doubt
others can and will be suggested. What strikes me as insupportable—
insupportable as a matter of fiscal and economic analysis and insupportable
in terms of a simple fairness and traditional American values—is to abolish
the estate tax altogether. I am confident that that conclusion is shared by
many thousands of business leaders and extremely wealthy individuals
whose estates will be subject to tax. I am confident that there is support
among the broader population. It is those voices that seem to me in touch
with long-held American values and ideals. And it is those voices, the "silent
majority," that need to be heard as the political attack on the estate tax is
renewed.
Chapter One
What Kind of Nation Do We Want to Be?
The reality is that US society is polarizing and its social arteries
hardening. The sumptuousness and bleakness of the respective lifestyles of
rich and poor represent a scale of difference in opportunity and wealth that is
almost medieval—and a standing offense to the American expectation that
everyone has the opportunity for life, liberty and happiness.
—Will Hutton, Observer of London
The purpose of the estate tax is not to raise revenue . . . but to gradually
correct the distribution of wealth and to prevent concentrations of power
detrimental to the fair value of political liberty and fair equality of opportunity.
—John Rawls, A Theory of Justice
What makes America great are the things we have done to strengthen
equality of opportunity. Over the last century, we have made significant
progress toward this ideal.
One of the important things our country has done to strengthen equality of
opportunity is to put a brake on the accumulation of hereditary wealth. It
could be argued that a society based on opportunity for all could still flourish
in a nation with great inequalities of wealth. We share a concern with our
nation"s founders that the existence of a powerful economic aristocracy
distorts our democracy and negates equality of opportunity. As we"ll see,
these fears were realized during the Gilded Age of the late 1800s, and the
estate tax was part of our country"s remedy.
The estate tax both limits the power of concentrated wealth and
generates revenue to pay for government from those most able to pay. Our
basic assumption in opposing repeal of the estate tax is that we will continue
to have a federal government that will require substantial revenue. This
assumption is not an argument—it is a plain and simple reality. Despite
divergent views on the purpose and size of government, it is most reasonable
that the estate tax be part of financing it.
But let"s say, for the sake of argument, we agree that to pay for the
minimal services of our federal government we need to raise a trillion dollars a
year. Do we primarily raise this revenue from the incomes and wages of
workers? Or from taxes on the consumption of goods? Or from the estates of
deceased wealthy people? All taxes have upsides and downsides. Taxes that
fall entirely on consumption discourage spending, thereby affecting the
economy negatively. A tax system that raises revenue solely from income
taxes would seriously burden persons with low incomes. An established
principle of taxation is that a good tax system will raise revenue from a
variety of sources and be fair, stable, and sufficient.
Revenue Loss and the Tax Burden Shift
The debate over the estate tax must take into account the absolute
requirement for federal and state revenue. And the estate tax should be
evaluated against all the other forms of taxation. What other form of taxation
do we have that is better targeted to those most able to pay? No other
constituency is in a better position to contribute to public services than the
heirs of deceased multimillionaires. Although the progressive income tax
collects revenue from those with high annual incomes, it does not begin to
tap the reservoirs of vast wealth and assets that exist in our nation.
One way or another, a certain amount of money must be paid in taxes to
the U.S. government to support its activities. We could have a long debate
about the proper size and scope of government, but most people would agree
that the federal government fulfills vital functions and we need to support its
activities with tax dollars. Eliminating the estate tax would deprive the
government of a dependable and highly progressive source of revenue.
As we"ll see, the long-term fiscal health of the country has been put at
risk by the 2001 tax cut. If that tax cut is not reversed, we can look forward to
substantial budget deficits for decades to come. In this light, the elimination
of the estate tax-–and the shift in tax burden-–is even more stark. As William
Gale and Samara Potter noted in their assessment of the entire 2001 tax bill,
Tax cuts are not simply a matter of returning unneeded or unused funds
to taxpayers, but rather a choice to require other, future taxpayers to cover
the long-term deficit, which the tax cut significantly exacerbates. Likewise,
the notion that the surplus is "the taxpayers" money" and should be returned
to them omits the observation that the fiscal gap is "the taxpayers" debt" and
should be paid by them. Thus, the issue is not whether taxpayers should
have their tax payments returned, but rather which taxpayers—current or
future—will be required to pay for the spending obligations incurred by current
and past taxpayers.
Consider these looming budget deficits juxtaposed with the immense
increases in personal wealth that have taken place in this country in the last
fifteen to twenty years. Despite the instability in the stock market and the
return to earth of the technology sector, there has been a dizzying
accumulation of wealth.
It would be folly for the patchwork of future federal revenue sources not to
include a tax on these accumulations. Today the revenue from the estate tax
generates about $30 billion, or about 1 percent of federal revenue, but it could
be a significant and larger contributor to the national revenue base in the
years to come.
Boston College researchers John J. Havens and Paul G. Schervish have
modeled projections about the scale of the intergenerational transfer of wealth
that will occur between now and 2052. They have also speculated about the
scale of potential estate tax revenue. In their research, they offer a range of
estimates based on different expectations of growth. The estimated size of
the intergenerational transfer of wealth between 1998 and 2052 ranges from a
low estimate of $40.6 trillion, based on a modest 2 percent growth rate, to a
high estimate of $136.2 trillion, based on a 4 percent growth rate. Under the
low growth estimate, an estimated $15.4 trillion will pass from the 839,000
estates valued at more than $5 million.
Havens and Schervish estimate that over this period between $13.4 trillion
and $25.8 trillion will pass from living parents to children. They estimate that
the total bequests to heirs, including these inter vivos (between the living)
gifts, will range from $24.6 trillion to $65.3 trillion. An estimated $19.4 trillion
to $50.6 trillion will be given to charities.
The amount of revenue generated for the estate tax is substantial under
these scenarios, even if we anticipate the impact of current reforms such as
increased exemptions. Havens and Schervish project that under their low-
growth estimate $8.5 trillion of this intergenerational wealth transfer will be
paid in estate taxes. Over fifty-four years, average annual estate tax revenue
would be $157 billion a year. Under the higher-growth estimate, estate tax
revenue would be $40.6 trillion, for average annual estate tax revenue of $752
billion per year.
An estate tax on only the four hundred wealthiest Americans would
generate substantial revenue. The average net worth of the individuals and
families listed on the Forbes 400 is $2.4 billion. To join the 400 club required
$725 million in 2001. This is a great leap from when Forbes Magazine first
started counting in 1982, when the average net worth of the Forbes 400 was
$400 million and the entry threshold was $91 million. A meaningful estate tax
imposed on these wonderfully successful people"s wealth (their heirs,
actually) could generate, at an effective tax rate of 30 percent and an
exemption of $3 million, $278 billion over the years between now and the
demise of the last survivor!
Losing federal estate tax revenue ranging from $157 billion to $752 billion
a year would trigger two possible negative scenarios. There will be either
serious cutbacks in public expenditures or serious increases in the taxes of
those less able to pay.
The Impact on State Treasuries
Estate and inheritance taxes at the state level preceded the current federal
estate tax, but since the mid-1920s there has been an interaction between
states and the federal government related to estate taxation. In 1926, the
estate tax law was amended to allow taxpayers to claim a deduction against
their federal estate tax liability for the amount of estate taxes they pay to
their states.
Although estate tax repeal does not occur until the year 2010, some state
governments are already beginning to feel the loss in revenue. In structuring
the phaseout of the estate tax, congressional tax writers reduced the pinch
on the federal treasury by accelerating the timetable of revenue loss to the
states. Starting in 2002, thirty-eight states began to lose a portion of the
revenue that they received through their state "pickup" tax.
Many states will lose all of this tax revenue sharing by 2005, while the
repeal of the federal estate tax occurs more gradually over ten years. This
structuring will accelerate the loss of at least $50 billion to $100 billion over
the next ten years, about 1.5 percent of state tax collections. One of the
ways the fed...
Paul A. Volcker
I didn"t get it last year. I still don"t get it. Why, right now, in the aftermath of
the greatest burst of paper wealth creation in all of American history (in all of
history for all I know), in the midst of growing concern (even alarm) about the
growing disparity of wealth and income in the United States, right in the face
of increasing pressures on the federal budget, has there been so much effort
to abolish the estate tax?
Reform—long overdue—I can understand. But total elimination of a tax
broadly accepted as a reasonable part of our revenue system for close to a
century is quite another thing. Of course, no one likes to pay taxes when
alive, or at the expense of potential heirs, after death. But I think we all
recognize, liberal or conservative, rich or poor, that some taxes, like death
itself, are inevitable. The unavoidable fact is that government has certain
responsibilities. The discharge of those responsibilities costs money.
We can, we should, and we endlessly do debate just how far those
governmental responsibilities should extend, and how much we should
spend. We should also be careful about how we tax. We want to minimize
adverse effects on incentives. We should be watchful about distorting
economic activity in ways that reduce efficiency, productivity, and growth.
What we can"t escape is a simple piece of logic. Once we agree on total
expenditures and revenues, if we lose one existing source of revenue—say
for the federal estate tax—we will have to find a replacement. That will
become harder and harder to do a few years ahead, when estate tax
revenues will likely increase rapidly, reflecting the enormous rise in wealth
during the 1980s and 1990s. It"s hard for me—hard in terms of economic
analysis—to think of practical alternatives with fewer adverse effects than a
(reformed) estate tax.
Consider the main possibilities. More points on the income tax, directly
contrary to "supply-side" theorizing? New sales or value-added taxes,
regressive in their impact on already skewed incomes? Even if we succeed,
right against the current trend, in reducing total spending and revenue needs,
we would still have to choose among various taxes. Quite apart from
questions of political practicality, we would be hard-pressed to find evidence
that, compared with the alternatives, a reasonable estate tax significantly
discourages work effort or innovation or savings. I realize much more is at
stake than these calculations of the "dismal science" of economics.
In Wealth and Our Commonwealth, Bill Gates Sr. and Chuck Collins
appeal to one of the more treasured and persistent strains in the uniquely
American experience. From the days of our founding fathers, through
Democratic and Republican administrations, among conservatives and
liberals alike, the concept of equality of opportunity and dispersion of wealth
and economic power has been a part of the American psyche. The
inheritance of huge fortunes, far beyond any reasonable need for education,
for medical care, and for a comfortable—even luxurious—standard of living
has never rested easily with that political philosophy.
Of course, money is not the only measure of real wealth and opportunity,
and perhaps not the most important. Moreover, some monetary measure of
equality at the starting gate of life will never be achieved, certainly not by
taxation, and it wouldn"t make sense to try. But surely, as the authors so
eloquently set out, our traditional values—our moral values—should weigh
heavily, in fact conclusively, on the side of some tax on exceptionally large
estates.
Plainly, the act hastily passed last year, with a sudden phaseout in 2010
only to be reversed the following year, doesn"t make sense. Black humor
about the incentives to keep grandma on the respirator until the turn of the
year is only a macabre exaggeration of the enormous complications for
rational estate planning of the existing law. The added burdens implicit for
strained state budgets is only one of the poorly foreseen "side effects."
The time has come for real reform, sustainable reform, that deals with
outdated and unnecessarily intrusive elements of the old and new laws. For
one thing, we ought to take account of inflation and the rising levels of real
wealth. Gates and Collins rightly suggest the old six-hundred-thousand-dollar
and the current million-dollar exemptions are too low. A swath of families that
today would be considered among the reasonably affluent rather than the
exceptionally wealthy are affected. Similarly the annual allowances for
individual tax-free gifts, now eleven thousand dollars, could be raised
significantly. The purported adverse impact on family farms and small family
business—which Gates and Collins convincingly document as enormously
exaggerated by propagandists for the end of "death taxes"—could be
practically eliminated.
But by all means let"s keep the tax on truly huge fortunes. Even then, no
one would be forced to pay over any of his or her estate to government
against his or her wishes. Instead, an exemption for charitable institutions
provides other avenues for satisfying personal and community objectives.
This book sets out one reasonable approach toward reform. No doubt
others can and will be suggested. What strikes me as insupportable—
insupportable as a matter of fiscal and economic analysis and insupportable
in terms of a simple fairness and traditional American values—is to abolish
the estate tax altogether. I am confident that that conclusion is shared by
many thousands of business leaders and extremely wealthy individuals
whose estates will be subject to tax. I am confident that there is support
among the broader population. It is those voices that seem to me in touch
with long-held American values and ideals. And it is those voices, the "silent
majority," that need to be heard as the political attack on the estate tax is
renewed.
Chapter One
What Kind of Nation Do We Want to Be?
The reality is that US society is polarizing and its social arteries
hardening. The sumptuousness and bleakness of the respective lifestyles of
rich and poor represent a scale of difference in opportunity and wealth that is
almost medieval—and a standing offense to the American expectation that
everyone has the opportunity for life, liberty and happiness.
—Will Hutton, Observer of London
The purpose of the estate tax is not to raise revenue . . . but to gradually
correct the distribution of wealth and to prevent concentrations of power
detrimental to the fair value of political liberty and fair equality of opportunity.
—John Rawls, A Theory of Justice
What makes America great are the things we have done to strengthen
equality of opportunity. Over the last century, we have made significant
progress toward this ideal.
One of the important things our country has done to strengthen equality of
opportunity is to put a brake on the accumulation of hereditary wealth. It
could be argued that a society based on opportunity for all could still flourish
in a nation with great inequalities of wealth. We share a concern with our
nation"s founders that the existence of a powerful economic aristocracy
distorts our democracy and negates equality of opportunity. As we"ll see,
these fears were realized during the Gilded Age of the late 1800s, and the
estate tax was part of our country"s remedy.
The estate tax both limits the power of concentrated wealth and
generates revenue to pay for government from those most able to pay. Our
basic assumption in opposing repeal of the estate tax is that we will continue
to have a federal government that will require substantial revenue. This
assumption is not an argument—it is a plain and simple reality. Despite
divergent views on the purpose and size of government, it is most reasonable
that the estate tax be part of financing it.
But let"s say, for the sake of argument, we agree that to pay for the
minimal services of our federal government we need to raise a trillion dollars a
year. Do we primarily raise this revenue from the incomes and wages of
workers? Or from taxes on the consumption of goods? Or from the estates of
deceased wealthy people? All taxes have upsides and downsides. Taxes that
fall entirely on consumption discourage spending, thereby affecting the
economy negatively. A tax system that raises revenue solely from income
taxes would seriously burden persons with low incomes. An established
principle of taxation is that a good tax system will raise revenue from a
variety of sources and be fair, stable, and sufficient.
Revenue Loss and the Tax Burden Shift
The debate over the estate tax must take into account the absolute
requirement for federal and state revenue. And the estate tax should be
evaluated against all the other forms of taxation. What other form of taxation
do we have that is better targeted to those most able to pay? No other
constituency is in a better position to contribute to public services than the
heirs of deceased multimillionaires. Although the progressive income tax
collects revenue from those with high annual incomes, it does not begin to
tap the reservoirs of vast wealth and assets that exist in our nation.
One way or another, a certain amount of money must be paid in taxes to
the U.S. government to support its activities. We could have a long debate
about the proper size and scope of government, but most people would agree
that the federal government fulfills vital functions and we need to support its
activities with tax dollars. Eliminating the estate tax would deprive the
government of a dependable and highly progressive source of revenue.
As we"ll see, the long-term fiscal health of the country has been put at
risk by the 2001 tax cut. If that tax cut is not reversed, we can look forward to
substantial budget deficits for decades to come. In this light, the elimination
of the estate tax-–and the shift in tax burden-–is even more stark. As William
Gale and Samara Potter noted in their assessment of the entire 2001 tax bill,
Tax cuts are not simply a matter of returning unneeded or unused funds
to taxpayers, but rather a choice to require other, future taxpayers to cover
the long-term deficit, which the tax cut significantly exacerbates. Likewise,
the notion that the surplus is "the taxpayers" money" and should be returned
to them omits the observation that the fiscal gap is "the taxpayers" debt" and
should be paid by them. Thus, the issue is not whether taxpayers should
have their tax payments returned, but rather which taxpayers—current or
future—will be required to pay for the spending obligations incurred by current
and past taxpayers.
Consider these looming budget deficits juxtaposed with the immense
increases in personal wealth that have taken place in this country in the last
fifteen to twenty years. Despite the instability in the stock market and the
return to earth of the technology sector, there has been a dizzying
accumulation of wealth.
It would be folly for the patchwork of future federal revenue sources not to
include a tax on these accumulations. Today the revenue from the estate tax
generates about $30 billion, or about 1 percent of federal revenue, but it could
be a significant and larger contributor to the national revenue base in the
years to come.
Boston College researchers John J. Havens and Paul G. Schervish have
modeled projections about the scale of the intergenerational transfer of wealth
that will occur between now and 2052. They have also speculated about the
scale of potential estate tax revenue. In their research, they offer a range of
estimates based on different expectations of growth. The estimated size of
the intergenerational transfer of wealth between 1998 and 2052 ranges from a
low estimate of $40.6 trillion, based on a modest 2 percent growth rate, to a
high estimate of $136.2 trillion, based on a 4 percent growth rate. Under the
low growth estimate, an estimated $15.4 trillion will pass from the 839,000
estates valued at more than $5 million.
Havens and Schervish estimate that over this period between $13.4 trillion
and $25.8 trillion will pass from living parents to children. They estimate that
the total bequests to heirs, including these inter vivos (between the living)
gifts, will range from $24.6 trillion to $65.3 trillion. An estimated $19.4 trillion
to $50.6 trillion will be given to charities.
The amount of revenue generated for the estate tax is substantial under
these scenarios, even if we anticipate the impact of current reforms such as
increased exemptions. Havens and Schervish project that under their low-
growth estimate $8.5 trillion of this intergenerational wealth transfer will be
paid in estate taxes. Over fifty-four years, average annual estate tax revenue
would be $157 billion a year. Under the higher-growth estimate, estate tax
revenue would be $40.6 trillion, for average annual estate tax revenue of $752
billion per year.
An estate tax on only the four hundred wealthiest Americans would
generate substantial revenue. The average net worth of the individuals and
families listed on the Forbes 400 is $2.4 billion. To join the 400 club required
$725 million in 2001. This is a great leap from when Forbes Magazine first
started counting in 1982, when the average net worth of the Forbes 400 was
$400 million and the entry threshold was $91 million. A meaningful estate tax
imposed on these wonderfully successful people"s wealth (their heirs,
actually) could generate, at an effective tax rate of 30 percent and an
exemption of $3 million, $278 billion over the years between now and the
demise of the last survivor!
Losing federal estate tax revenue ranging from $157 billion to $752 billion
a year would trigger two possible negative scenarios. There will be either
serious cutbacks in public expenditures or serious increases in the taxes of
those less able to pay.
The Impact on State Treasuries
Estate and inheritance taxes at the state level preceded the current federal
estate tax, but since the mid-1920s there has been an interaction between
states and the federal government related to estate taxation. In 1926, the
estate tax law was amended to allow taxpayers to claim a deduction against
their federal estate tax liability for the amount of estate taxes they pay to
their states.
Although estate tax repeal does not occur until the year 2010, some state
governments are already beginning to feel the loss in revenue. In structuring
the phaseout of the estate tax, congressional tax writers reduced the pinch
on the federal treasury by accelerating the timetable of revenue loss to the
states. Starting in 2002, thirty-eight states began to lose a portion of the
revenue that they received through their state "pickup" tax.
Many states will lose all of this tax revenue sharing by 2005, while the
repeal of the federal estate tax occurs more gradually over ten years. This
structuring will accelerate the loss of at least $50 billion to $100 billion over
the next ten years, about 1.5 percent of state tax collections. One of the
ways the fed...
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- PublisherBeacon Press
- Publication date2003
- ISBN 10 080704718X
- ISBN 13 9780807047187
- BindingHardcover
- Edition number1
- Number of pages184
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Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes
Published by
Beacon Press
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Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes
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Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes
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Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes
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Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes
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Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes
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(2003)
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WEALTH AND OUR COMMONWEALTH: WHY
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Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes
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(2003)
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Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortunes
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Beacon Press
(2003)
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ISBN 13: 9780807047187
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