Why America Needs the Estate Tax
by William H. Gates Sr.
SEATTLE: The debate over whether to repeal the estate tax is fundamentally a debate about what sort of country Americans want to leave to future generations. Nearly a century ago, reformers such as Theodore Roosevelt worried that huge fortunes amassed during the Gilded Age would, if left untaxed, evolve into a dangerous, permanent aristocracy.
Such distinguished Americans as Justice Louis Brandeis of the Supreme Court saw the estate tax as a practical, democratic restraint on massive concentrated wealth and power. And in fact repeal of the estate tax today would widen the growing gap in economic and political influence between the wealthy and the rest of America.
Self-serving opponents of the estate tax are doing everything they can to confuse people. They call it the "death tax" and imply that most Americans commonly pay it. In reality the estate tax is a tax on wealth, not death, and affects only the wealthiest 2 percent of Americans. Poverty, on the other hand, afflicts one out of six American children.
Repeal would hand the heirs of America's most affluent a $294 billion tax cut over the next decade. In 1997, almost half the estate tax was paid by just 2,400 estates.
The consequences of estate tax repeal have been only partly explored. Repeal would ripple through the U.S. economy, reducing not just federal but also state revenues, and decimating the charitable sector.
The real costs of estate tax repeal would surface years from now. That drop of $294 billion in federal revenue in the first 10 years would balloon to a $750 billion loss in the second.
The estate tax currently brings in revenue - about $28 billion in 1999 - equal to the entire federal expenditure for housing and urban development. Federal revenues lost through estate-tax repeal would have to be made up by increasing taxes on others or by cuts in Social Security, Medicare, environmental protection or other government programs important to America's well being.
Estate tax repeal would also squeeze state treasuries. About one-fifth of estate tax revenues go to states through what is called a "pick-up tax." Repeal would cost states some $5.5 billion a year, and when it takes full effect, costs would approach $9 billion. California is projected to lose $937 million in 2000, and my home state of Washington would lose $87 million.
Already, states are cutting back as the economy slows, tax revenues drop and state budget surpluses disappear. It would be unconscionable to give the wealthy a massive tax break at a time when crucial programs assisting children and seniors are on the chopping block.
The destructive impact on public programs would be compounded by a fall in philanthropy. For generations, the estate tax has provided the very wealthy with a powerful incentive for charitable giving. The U.S. Treasury estimates that complete repeal would reduce contributions to charity by up to $6 billion a year.
Taxable estates give charities more than twice the amount given by nontaxable estates. In 1997 estates provided $14.3 billion to charities. Nearly three-fourths of this came from estates worth $5 million or more.
At a time when America is counting on the charitable and independent sectors to become considerably more active in confronting social problems, estate tax repeal would devastate nonprofit organizations ranging from educational institutions to church-operated religious organizations that aid the poor and disadvantaged.
The very landscape of America would be scarred. Land trusts such as the Nature Conservancy benefit enormously from the bequests of open space, farmland and wild areas encouraged by the estate tax.
Legitimate concerns have been raised about the need to protect family farms and small businesses from certain effects of the estate tax. The Tax Reform Act of 1997 went a long way toward addressing these concerns.
The estate tax ought to be fixed by strengthening family enterprise
protections and raising individual exemptions, but let's not harm the United
States by repealing it. The writer, a co-chair of the Bill and Melinda
Gates Foundation, contributed this personal comment to The Washington Post.