Just an interesting opinion piece in the St. Louis Post Dispatch
TAXES: Let the "death tax" live
By JOSEPH LOSOS
04/20/2005
The U.S. House of Representatives recently passed by a wide margin a bill to abolish the estate tax after 2009. If this becomes law - i.e., if the Senate concurs - it will signify a major change in our fiscal culture.
Repealing this tax, obviously, would lower government revenue at a time when federal deficits are climbing to alarming levels, and efforts to cut spending are fierce. Simply from a financial viewpoint, it is a very strange time to be eliminating revenue, even if this particular loss would be comparatively small.
But the repeal of this levy - labeled the "death tax" by its foes - involves larger social and philosophical issues.
This tax on the wealth of the rich when they die passed in much the present form in 1916 (albeit at much lower rates). The Progressive Era drive to limit the power of great wealth and increase social equality, which was so important after 1900 and produced the reimposition of a federal income tax, culminated in the passage of this law.
On the whole, it wasn't a measure to raise revenue so much as a significant tool in curbing the generational accumulation of massive wealth. Proponents of the law pushed it as another way to dismantle what one of them called the "industrial feudalism" of big money - the power of the Rockefellers, Morgans and other familial business combines. In a broad sense, the progressive inheritance tax complemented the progressive income tax.
To the surprise of many European and domestic radical observers, the United States never became a land where socialist parties thrived. Instead, capitalism remained the dominant ethos, but progressive taxation, including the inheritance taxes, supported laws aiming for greater economic and social equality.
The end result of the Progressive Era was a sort of grand compromise; a society where, to paraphrase President Calvin Coolidge, the main business of America was business, but with the addition of certain limits and public control. The public portion of that system grew during the New Deal years and declined in the past 50 years or so, but the blend has been a staple of American life these last hundred years.
Regardless of the revenue it raised, the tax on inherited wealth has been a symbolically important part of that compromise. As one left-wing student of this subject, John Brittain, has remarked, "The inheritance of material advantage stands in sharp contrast to the accumulation of personal wealth through a person's own efforts during his lifetime. An inheritance entails no productive activity."
This is why some people of immense wealth, often self-made multimillionaires, have supported severe taxes on inheritance. Andrew Carnegie famously asserted that it was a disgrace to die rich and advocated heavy taxes at death for his peers who didn't give away their money while they were alive. Warren Buffet and the Gateses, father and son, do not go quite that far, but they are on record as sharing similar beliefs.
Encouraging the retention of money by those who create wealth tends to be more socially acceptable than the mere receipt of wealth from others. This is not to say that the preservation of family assets and the claims of individual choice are not relevant; the issue is not confiscation of all wealth but a surrender of a portion of it, with substantial deductibles to insulate the mildly affluent.
Almost nobody likes to pay taxes; April 15 is not a joyous day. But is it worse for the dead to suffer than the living? Yes, the living actually pay the inheritance tax: the fortunate beneficiaries of estates. But if there is something ghoulish about paying taxes at the time of death, surely it is equally ghoulish to collect or transfer money from those who have died.
Benjamin Franklin said that nothing was inevitable except death and taxes. The connection between the two is very old; indeed, taxes on inheritance are among the oldest levies in history. To break that nexus is to injure a social compact of almost 100 years. It is a radical and foolish step.
Joseph Losos is a St. Louis investment adviser.
