It's not often that a group of billionaires, millionaires and high-profile Americans issues a public call asking to be taxed more. But that's what happened during a December 11 teleconference for the media hosted by Responsible Wealth. The nation's political establishment should heed their plea.
A project of the non-partisan, non-profit United for a Fair Economy (UFE), Project Wealth enlisted key members during the call to propose a permanent estate tax with a $4 million per couple exemption level and a graduated tax rate on taxable estates, beginning at 45 percent and rising on the largest fortunes. The proposal also embraces a simplified compliance with estate tax law to allow for state tax credits, portability and reunification of federal gift taxes.
Speakers during the conference call included Bill Gates Sr.; Former Treasury Secretary Robert Rubin; John Bogle, founder of mutual fund company The Vanguard Group; the American filmmaker, philanthropist, and scholar Abigail Disney; and Richard Rockefeller, past president of the Rockefeller Family Fund and a current chair of the Rockefeller Brothers Fund.
Other prominent Americans among the more than 300 individuals who have signed on to the proposal are former President, Jimmy Carter, Robert Reich, the former secretary of labor during the Clinton administration, as well as the business magnates, investors and philanthropists Warren Buffett and George Soros.
That's an impressive short list of people who are calling for a "strong estate tax." And they're doing so for good reasons: It's badly needed, both to help return the U.S. to fiscal health and to counteract the dangerous social consequences of concentrating an ever larger proportion of the nation's wealth at the top of the economic pyramid.
Yet as President Obama and House Speaker John Boehner endeavor to reach a consensus on averting the fiscal cliff much of the media coverage about areas of disagreement have focused on entitlement program cuts and marginal income tax increases that would be acceptable to the party leaders and their allies in Congress. All but lost in the debate are the merits of a robust estate tax regime.
Backers of the UFE initiative are seeking an audience with the White House to promote their proposal, which produces more revenue than the Administration's offer to House Republicans, but less than the pre-2001 estate tax regime that would become law in the absence of an agreement. The latter, the Congressional Budget Office estimates, would raise $536 billion over a decade. President's Obama's proposal would generate less than half that figure—$256 billion—which Responsible Wealth Project Director Michael Lapham insists leaves "too much money on the table."
I agree. Given the gargantuan size of the U.S. budget deficit (the red ink at year-end will total $1.3 trillion or 5.5 percent of gross domestic product) and the politically difficult task of slashing ever-popular social programs, the President's proposed budget for fiscal 2013 does too little to close the gaps between revenue and spending.
Opponents of a strong estate tax—and they are legion in Congress—are wont to cite arguments about the supposed negative economic impact of taxing people's estates. The Project Wealth presenters convincingly rebutted several of the charges.
Responding to the assertion that an over-burdensome estate tax could drive inheritors of small farms out of business, Lapham said there is no instance of this happening before 2001, when the estate tax exclusion per individual was just $1 million. When asked whether wealthy people who support an estate tax should just write a check to the Treasury to satisfy their conscience, former Treasury Secretary Rubin flatly rejected this suggestion, noting that the federal government cannot rely on voluntary contributions to function.
Rubin also dismissed the claim that an estate tax would only prompt small businesses to adopt tax-avoidance strategies (such as life insurance-funded wealth transfer planning techniques), and that money used to pay for these strategies would be better spent reinvesting in the business. This argument, said Rubin, is akin to letting the "perfect be the enemy of the good." Translation: Insisting on perfection in the tax code would result in no improvement at all. As Rubin pointed out, a well-designed and comprehensive estate tax will yield to society economic and social benefits far outweighing the attendant costs. If those in Washington debating the estate tax would only put politics aside and dispassionately consider the gains to be had, then the Project Wealth initiative will not have been in vain.
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