“The man of great wealth owes a particular obligation to the state because he derives special advantage
from the mere existence of government.” - President Theodore Roosevelt
Another Attempt at Estate Tax Repeal
Although Congress just recently passed and the President signed into law significant tax cuts, the Senate is already gearing up for an even bigger tax vote that will have significant
implications on our nation’s fiscal health, ability to fund critical services, and on the overall fairness of our tax
system. Sometime before the end of June, the Senate is scheduled to again take
up legislation to permanently repeal the estate tax. A vote had been scheduled
for September of last year, but the effort was set aside in the wake of Hurricane Katrina. The
House of Representatives has already voted a number of times, most recently in April of 2005, for permanent repeal.
Votes to permanently repeal the estate tax continue to come before Congress because proponents
of repeal were unable to include it in the massive tax cuts the President signed into law in 2001 due to its cost - an estimated
$1 trillion between 2012 and 2021 (the decade when repeal proposals would be fully phased-in).
Instead, the 2001 tax bill created a complicated schedule of phasing-out and increasing exemptions in the estate tax
leading up to a 1-year repeal in 2010 before reverting back to 2000 law in 2011. This
crazy scheme was devised to mask the true costs of eliminating the estate tax and to create on-going opportunities to push
for repeal.
Why the Estate Tax Matters
In many ways the debate over the estate tax highlights the concerns that the National
Advocacy Center has been lifting
up with regard to overall budget and tax policy for several years now. It raises
fundamental questions of fairness and balance and about our nation’s commitment to the common good. In a climate of large budget deficits and deep cutbacks in human needs programs is it fair to provide further
tax breaks to most affluent in our nation, when revenues lost from repealing the estate tax would either have to be made up
by increasing taxes on those less able to pay or by even deeper cuts to the programs that help create opportunity for all
and sustain America’s overall well-being? In a time of increasing poverty and economic inequality and decreasing economic
mobility, is it just for those who have benefited most from the current system to pay less for the public education, roads,
clean water, legal protection, research funding and public safety, that helped make their success possible? When charitable organizations are struggling to meet increased needs and fewer government resources are
available to them, is it right to abolish one of the most powerful incentives for charitable giving in our tax code?
Catholic social teaching continually reminds us that we must evaluate our economy,
our national priorities, and our government’s decisions from the “bottom up” and with regard to their impact
on the common good. It also teaches that taxation is an appropriate expression
of our shared commitment to the health and security of our communities and should be structured progressively so that those
with greater resources bear a greater responsibility (Economic Justice for All, #202).
From this perspective, repealing the estate tax would be both fiscally and morally
irresponsible and the National Advocacy
Center strongly opposes efforts to do so.
As we have written before, our nation has the resources to ensure every person is free from hunger, has access to quality
healthcare, can live in an affordable and decent home, receives the education necessary for work that pays a livable wage,
and lives in a safe community—it is just a question of whether we have the will to make strengthening the common good
a national priority.
The
Parable of the Rich Fool (Luke 12:13-21)
Someone in the crowd said to him, ‘Teacher, tell my brother to divide the family inheritance
with me.’ But he said to him, ‘Friend, who set me to be a judge or arbitrator over you?’ And he said to
them, ‘Take care! Be on your guard against all kinds of greed; for one’s life does not consist in the abundance
of possessions.’ Then he told them a parable: ‘The land of a rich man produced abundantly. And he thought to himself,
“What should I do, for I have no place to store my crops?” Then he said, “I will do this: I will pull down
my barns and build larger ones, and there I will store all my grain and my goods. And I will say to my soul, Soul, you have
ample goods laid up for many years; relax, eat, drink, be merry.” But God said to him, “You fool! This very night
your life is being demanded of you. And the things you have prepared, whose will they be?” So it is with those who store
up treasures for themselves but are not rich towards God.’
What is the
Estate Tax?
The estate tax was first enacted in response to the disparities of wealth and power brought
by the industrial revolution and in reaction to the concentrations of wealth and excesses of America’s “Gilded
Age” that were seen as damaging to the democratic process. It is a tax
levied when wealth is transferred after death and it is the most progressive component of our current tax code. In its current form, the estate tax only applies to the wealthiest .27% (less than one-third of one percent!)
of estates. This means that more than 99% of Americans are able upon death to pass on their estates to their heirs completely
tax free.
Despite applying to only a small portion of the population, the estate tax generates roughly
$15-$20 billion annually. As a point of comparison, in 2004 the estate tax raised
about $21.5 billion, an amount equal to entire budget of Department of Agriculture or the same year, nearly twice the budget
of the Department of Labor, and almost three times the budget of the Environmental Protection Agency! (Source: America’s Wealth Gap and the Case for Preserving the Estate Tax, United for a Fair Economy). In addition,
the charitable deductions in the estate tax provide a strong incentive for charitable giving—an estimated $10-20 billion
per year!
From everyone to whom much has been given, much will be required; and from one to whom much has
been entrusted, even more will be demanded. –
Luke 12:48
Costs
of Repeal and “Reform”
As mentioned above, the costs of permanently repealing the estate tax would be nearly $1 trillion over the first decade it is fully enacted. This cost comes on top of already massive
deficits created primarily by previous tax cuts and increased military spending. To
again put this cost in perspective, the amount of revenue generated by maintaining the estate tax at 2009 levels would be
enough to cover anywhere from one-fourth to one-half of the projected shortfall in Social Security. The
loss of revenue would put even greater pressure on the budget and mean even less funding for important priorities such as
expanding health care coverage and reducing poverty. In addition, a 2004 report from the Congressional Budget Office shows that repealing the estate tax will have
a significant negative impact on charitable giving, possibly reducing it by as much as $24 billion per year.
Because of the growing influence of opponents of repealing the estate tax a number of “reform”
proposals are also under consideration on Capitol Hill. Unfortunately, most of
these proposals would cost almost as much as full repeal. There are a number
of alternative reform proposals being offered by advocacy groups such as United for a Fair Economy that would preserve more revenue and the progressive nature of the estate tax, but
unfortunately these are unlikely to be taken up by Congress because those pushing for votes on the estate tax want to eliminate
as much of it as possible.
“We can have democracy in this country, or we can have great wealth concentrated in the
hands of the few, but we can’t have both.” – Louis Brandeis, Supreme Court Justice (1916-1939)
Additional Resources
Estate Tax Series (including myths and facts about the estate tax) – Center on Budget and Policy
Priorities
Estate Tax Fact Sheets – United for a Fair Economy
Estate Tax Background and Principles for Just and Fair Taxation - NETWORK
Investing Millions to Save Billions: The Campaign of the Super
Wealthy to Kill the Estate Tax (PDF) – Report by Public Citizen and United for A Fair Economy
"An Evaluation of Federal Tax Policy Based on Judeo-Christian Ethics" - Susan Pace Hamill, 25 Virginia Tax Review 671-764 (Winter 2006)
