The young senator promises bold ideas for a “new American Century” — like opposing the new relationship with Cuba, oppposing marriage equality, opposing the comprehensive immigration reform he helped broker before he decided to run for president — and like, certainly, that newest of bold Republican ideas: lowering taxes for the rich. Specifically, lowering the rate on billion-dollar inheritances to . . . zero. (See, also, Bill Press: “New Face With Old Ideas.”)
His party’s interest in eliminating the estate tax may ultimately help Democrats more than it helps Republicans in the next election.
WHY ARE REPUBLICANS TRYING TO REPEAL THE ESTATE TAX? IT’S THEIR NATURE
Yesterday, the House voted to repeal the estate tax, apparently in the belief that the American public needed a reminder that the Republican Party is the party of the wealthy. I’ll get to why the arguments they make about this issue are either problematic or just factually wrong (depending on which argument you’re talking about), but as a political decision, holding this vote seems rather foolish. They know that even if they got the 60 votes they would need to overcome a Democratic filibuster in the Senate, President Obama would likely veto the bill. So why bother?
The answer can be found in the parable of the scorpion and the frog, which you probably know. The scorpion asks the frog for a ride across the river; the frog says, “But you’ll sting me.” The scorpion replies, “Why would I do that? If I sting you then we both drown.” The frog agrees, and midway across the river the scorpion stings the frog. As they begin to sink to their deaths, the frog says, “Why did you do that?” The scorpion answers, “It’s my nature.”
In this case, the frog is the eventual GOP presidential nominee, and the scorpion is congressional Republicans. At a time when everyone is talking about income inequality and stagnant wages, the nominee will want to convince voters that he understands their concerns and will find ways to improve their lot. Meanwhile, his congressional allies are trying to make sure Donald Trump’s kids don’t have to pay taxes.
It isn’t that the estate tax is incredibly popular, because it isn’t. If you ask people in a poll whether they think it ought to be repealed, a majority will say yes. (I discussed some reasons why here.) But this isn’t a problem because voters will be angry at Republicans for trying to repeal the tax, it’s a problem because it demonstrates what Republican priorities are, in exactly the way they don’t want. You can bet that Hillary Clinton will contrast her economic plans with those of Republicans, who want to cut upper-income rates, as well as taxes on investments and inheritances. This is a concrete demonstration of what she’ll talk about.
Republicans say that they aren’t really trying to help wealthy heirs; instead, this is motivated by their deep concern for the fate of family farms and small businesses. But today, the first $5.43 million of any estate is exempt from taxes. That’s the single most important fact to understand about this tax.
And what about those family farms Republicans are always talking about, the ones that are constantly being sold off to pay the estate taxes? They’re a myth. When The Post’s fact-checker Glenn Kessler was doing his estate tax fact check, he asked the office of John Thune, the sponsor of the Senate version of repeal, about the farms we keep hearing about. “Thune’s staff conceded that they could not identify a single farm that had been sold because of the estate tax, but they said some farms had to sell acreage in order to pay the tax.” Nobody else seems to be able to find one, either. You’ll notice that when Republicans talk about this, they always posit a hypothetical family farm being sold off and not “My constituents the Millers had to sell off their farm,” because the Millers are the equivalent of a unicorn. According to the Department of Agriculture, in 2013 only .6 percent — or 1 in 167 — of the estates of farmers who died owed any estate tax at all.
Because of that large exemption, currently at $5.43 million, the numbers for all estates are even smaller. According to the Joint Committee on Taxation, “In 2013, the most recent year for which final numbers are available, there were 2.6 million deaths in the United States, and 4,700 estate tax returns reporting some tax liability were filed. Thus, taxable estate tax returns represented approximately one-fifth of one percent of deaths in 2013.”
That’s 1 in every 553 estates that owed any tax. Which does make you wonder why repealing the estate tax is an issue of such terrible urgency to Republicans. You’d think that if they were smarter, they’d say to themselves, “We want to do this eventually, but it isn’t going to happen with a Democrat in the White House. And we won’t get a Republican president unless we show the voters we care about ordinary people. So let’s just put this off until 2017.” But if there’s just one wealthy heir out there who might have to pay some tax on his inheritance, and heaven forbid decide to get a Porsche instead of a Ferrari next year, then that’s an injustice they simply can’t ignore. Politics might dictate otherwise, but Republicans can’t help themselves. It’s their nature.
And by the way? Eliminating the eestate tax is bad for nonprofits (making the after-tax cost of contributing to charity that much higher); bad for the deficit (which will only swell, if this revenue stream is shut off); bad for the economy generally (gross inequality slows economic growth, as does entrusting capital allocation decisions to the decedent’s often less-astute heirs) . . . and, to top it all off, as Jim Burt of Fort Worth, Texas, reminds us, it’s unAmerican:
JIM BURT ON THE ESTATE TAX
The latest proposals from the Republican presidential hopefuls include a “tax plan” from Marco Rubio that would entirely eliminate inheritance taxes. This flies in the face of both Republican history and American history.
The estate tax was championed by Republican Teddy Roosevelt but had precursors in other forms. America’s “Founding Fathers” showed their concerns about accumulations of great wealth even before the Constitution was adopted, by enacting the Northwest Ordnance of 1787, which established the terms for settling and governing the “Old Northwest.”
This law, which was immediately readopted by Congress under the Constitution, prohibited primogeniture and entail, which were the principal methods of accumulating and preserving great landed estates at that time, in the new territories. As fans of “Downton Abbey” should already know, primogeniture vested the bulk of an estate in the first born male heir, while entail prevented the distribution by gift of an estate during the life of the owner, so that once formed, a great landed estate could only grow and grow. This practice was outlawed in the new territories because our Founding Fathers feared the political effects of the accumulation of great fortunes and wanted to see them broken up periodically.
When the Constitution was adopted shortly thereafter, it also included a prohibition against titles of nobility. While today a noble title confers only social cachet even in the Old World, at the time of our founding a noble title conferred “privilege,” a word descending from two French roots meaning, literally (and I use the word literally), “private law,” including, in many countries, a dispensation from the payment of taxes, especially taxes on the ownership of land and the sale of its products. When ownership of land was the foundation of all wealth, freedom from land taxes was the functional equivalent of Marco Rubio’s proposal to eliminate taxation on investment income from interest, dividends, and capital gains, just as his proposed elimination of the estate tax is functionally equivalent to the re-institution of primogeniture and entail.
Our Founding Fathers wanted to discourage the political power of great wealth. The Republicans want to do the exact opposite.
What Rubio and his like propose is profoundly un-American: an assault upon the vision of our Founding Fathers, and a disguised step toward the elevation of a new class of privileged hereditary nobility in the United States. There could hardly be a more radical and extremist economic vision than the Republican parade toward an 18th century exaltation of wealth and privilege.
Democrats have long embaced a different perspective. As in this example:
From Andrei Cherney’s The Candy Bombers (thanks, Tom!):
Truman arrived in Chicago that afternoon, driving slowly past two miles of waving supporters in an open car, on his way to a nighttime address at the city’s stadium. . . . He spoke of Woodrow Wilson’s dream and Franklin Roosevelt’s United Nations, but said, “We must do more than just avert war. . . . [T]he American way of life which most of us have been taking for granted is threatened today by powerful forces of which most people are not even aware.” . . . This insidious cabal was known as the Republican Party.
The Republicans, Truman charged at this moment of heated worry about war and despotism, had “opened the gate to forces that would destroy our democracy.” He pointed out that “again and again in history, economic power concentrated in the hands of a few men has led to the loss of freedom.” And there was always one invariable constant to the rise of despotism. “When a few men get control of the economy of a nation, they find a ‘front man’ to run the country for them. Before Hitler came to power, control over the German economy had passed into the hands of a small group of rich manufacturers, bankers, and landowners. These men decided that Germany had to have a tough, ruthless dictator who would play their game and crush the strong German labor unions. So they put money and influence behind Adolf Hitler. We know the rest of the story. We also know that in Italy, in the 1920s, powerful Italian businessmen backed Mussolini, and in the 1930s, Japanese financiers helped Tojo’s military clique take over Japan.” Truman did not need to reveal the identity of this front man he was claiming was a would-be-American Hitler – right down to his mustache. If anyone failed to pick up the analogy, the next day’s papers did it for them.
Dewey retorted that Truman was soft on communism, and the next day, in Boston, Truman fired back. (It was a heck of an election; the one Truman went to bed thinking he had lost, and the famous Chicago Tribune “Dewey Wins!” headline.)
I couldn’t find the speech excerpted above, but here’s the 24-minute Boston speech, debunking Dewey’s charge . . . and blaming the disastrous mid-term election results of 1946, that gave the Republicans a majority in both houses of what would become known as the “Do Nothing Congress,” on the two-thirds of elgible Democrats who didn’t bother to vote. Sound familiar?
Quote of the Day
Markets are very good at what they do, in part because they harness greed and envy (in fact, all of the Seven Deadly Sins except sloth) and turn them into positive virtues.~Rocky Mountain Institute newsletter
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