Tuesday, February 15, 2005

Death To the "Death Tax" Repeal

My colleague The Moose did a post this morning playing off fresh charges by the former deputy director of the White House Office of Faith-Based and Community Initiatives that the administration took the whole faith-based project about as seriously as, well, "compassionate conservatism" in general.

But nestled in the post was another subject on which The Moose and I share a healthy obsession: the scheduled demise of the federal estate tax, a.k.a, in Republican-speak, the "death tax."

The Moose specifically proposed reinstating a reformed version of the estate tax and dedicating the money to a real faith-based initiative. But aside from that particular idea, I think Democrats, as a matter of basic principle, ought to single out the estate tax repeal as a Bush/GOP outrage that must not be allowed to stand.

This happens to be one issue where the standard lefty critique of centrist Democrats has some merit. At some point during the 1990s, the GOPers did some focus groups and discovered that sizeable majorities of voters didn't like the idea of family farmers and small business owners getting hit with high-rate federal inheritance taxes when they were struggling to keep the farm or business in the family for the next generation. They also discovered that calling the inheritance tax a "death tax" pushed even more buttons. Nothing excites Republicans more than finding an issue where they can simultaneously win votes and richly reward their richest constituencies. So not suprisingly, abolishing the "death tax" became a standard feature of GOP tax proposals in the Age of Newt, bearing poisonous fruit when Bush took office amidst spectacular budget surpluses and got the chance to cut taxes.

A goodly number of Democrats--especially those from marginal and/or rural districts--saw those polls and just flat-out caved (for the record, the DLC never did so, and in fact made the "death tax repeal" an object of particular hostility and derision). In fact, other than the so-called "marriage penalty" adjustment, repeal of federal inheritance taxes probably got more Democratic support in Congress than any other feature of the Bush tax package.

That was then. This is now. And now Democrats should seriously consider making opposition to a permanent "death tax repeal" a signature issue.

Why? Well, for one thing, repealing inheritance taxes strikes at the very heart of a long--and until recently, bipartisan--American tradition of progressive taxation in which the burden of self-government falls on wealth as well as work. (As The Moose often points out, Teddy Roosevelt was the father of the federal estate tax). There are three ways to get very, very rich. One is to earn it with actual work (a rare but not impossible feat). A second is to earn it through investment income. And a third is to inherit it. (A fourth, I suppose, is to marry it, perhaps more than once, but we're not talking about Sen. John Warner here). A broad-based tax system should not mysteriously exempt the third source of enormous wealth, especially since it is the one that rewards birth-status rather than effort or initiative or good judgment, and that serves virtually no economic purpose.

Moreover, truly dangerous and immoral concentrations of wealth often take generations to accumulate, with inheritances serving as the crucial link between economically rational and irrational--indeed, anti-competitive--consolidations of market power.

To put it another way, accepting the abolition of inheritance taxes makes any consistent and progressive fiscal philosophy incoherent. We're gonna tax high earners and small investors, but not big fat trust fund babies? Oh, really?

Aside from the principles involved, I am convinced Democrats can turn public opinion around on the estate tax. The extremist abolitionism of the GOP on this issue makes it easy for Democrats to be reasonable, in a way that's far more difficult in the complicated world of marginal rates on income.

For years, most Democrats have supported a reform of the federal estate tax that would raise the threshold for applying it high enough to exempt virtually every legitimate small family farm or small business, and perhaps even lower the rates, which are significantly higher than for corporate or personal incomes. That would essentially return the estate tax to a simple, progressive purpuse: a tax on the inheritence of very large personal fortunes--a "billionaire's tax," to demagogue it just a little, in the spirit of "death tax." Let the GOPers defend that, for a change.

Pivoting public opinion on inheritence taxes will require the kind of sustained, loud Democratic attention that is currently being paid to Social Security privatization. But it's worth it, both morally and politically. Repealing the estate tax is a central pillar of the GOP's plan to eventually shift the federal tax base entirely from wealth to work, with the goal of not only "starving the beast" of government, but of turning heavily taxed people of modest means into anti-tax zealots while solidifying the Republican Party's iron pact with the most privileged and powerful economic interests in the country.

So: if and when the Beast of Bush's SocSec proposal is slain or at least firmly caged, I nominate "death to the death tax repeal" as a Big Fight worth having, and winning.
-- Posted at 4:49 AM | Link to this post | Email this post

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