Copyright 2000 The San Diego Union-Tribune
The San
Diego Union-Tribune
August 31, 2000, Thursday
SECTION: OPINION;Pg. B-13
LENGTH: 798 words
HEADLINE:
This would be the wrong tax cut at the wrong time
BYLINE: Jean Ross; Ross is the executive director of
the California Budget Project, a Sacramento-based policy research group focusing
on fiscal and policy analysis affecting the low- and middle-income Californians.
BODY:
As the August congressional recess draws to a
close, a lone senator loaded a bill repealing the nation's estate tax on a red
tractor fo a journey down Pennsylvania Avenue to President Clinton's desk.
The estate, or "death," tax as its opponents prefer to call it, has been
the subject of heated debate both in the halls of Congress and the hustings of
the campaign trail. To listen to proponents of repeal, the estate tax threatens
Western civilization as we know it. If allowed to continue, the estate tax will
bring an end to the family farm and eradicate the family business.
In
fact, the rhetoric surrounding repeal of the estate tax belies the reality of
the tax and those who pay it. Fewer than two out of every 100 estates are
subject to tax. Only 43,000 of the 2.3 million people who died in 1997, for
example, left taxable estates.
Most estates avoid taxes because of the
sizable exemptions and deductions allowed under current law. In 2000, the first
$675,000 of an estate escapes any taxation whatsoever and an
estate of any size passes on to a spouse tax-free. Since each member of a
married couple is entitled to the $675,000 exemption, a couple
can leave $1.35 million in assets to their heirs tax-free. This
exemption will increase to $1 million, $2
million for a couple, in 2006. Estates also receive an unlimited tax deduction
for assets left to charity. Research findings show that estate taxes increase
levels of charitable giving and suggest that repeal would significantly reduce
charitable bequests.
Estate tax opponents claim that the tax is
confiscatory, citing a maximum tax rate of 55 cents on the dollar. Again, the
reality differs significantly from the rhetoric. In 1997, the tax rate on the
average estate was 17 percent. A very few, very large estates pay the vast
majority of estate taxes. In 1997, the estates of the wealthiest one out of
every 1,000 persons who died paid approximately half of all the taxes paid.
Estimates show that virtually all of the benefits of repeal would go to the
wealthiest 5 percent of the nation's families.
What about that family
farm? Farm assets accounted for 0.3 percent of the value of estates subject to
tax in 1997. Art, in contrast, accounted for two and a half times as much of the
value of taxable estates.
Stocks and bonds, not family businesses,
account for most of the wealth taxed by the estate tax. Farm and family-owned
business assets together accounted for about 10 percent of all 1997 estate
assets.
In 1997, Congress passed legislation designed to preserve family
farms and businesses. When family businesses account for a sizable fraction of
an estate, heirs can stretch out tax payments for as long as 14 years.
The special rules provide a special exemption for an additional
$675,000 in assets related to a family farm or business.
In light of these changes, it is clear that farms and family businesses
are handy political devices that allow the proponents of repeal to hide their
true motivations.
If the primary goal of opponents of the tax is to
protect family farms and businesses, this goal could be achieved at a far
smaller cost to the Treasury than the $50 billion per year cost
of repeal at full implementation.
The outcome of this debate holds
particular significance for California. In 1982, voters repealed the state's
inheritance tax. However, California, like all other states, receives a portion
of the federal tax.
These funds help pay for schools, parks, roads,
health care and other local priorities.
If an estate tax
repeal becomes law, the state will be left with a billion-dollar hole
to fill in its budget. A large sum, even in a year with a record-breaking
surplus. Put in context, a billion dollars is twice what the state spends on
financial aid for students seeking a higher education and more than the amount
allocated for environmental protection in this year's budget.
Elimination of the estate tax would use up about a third of the total
projected federal budget surplus over the next 10 years. And leaving aside the
question of whether the anticipated surpluses will actually materialize, our
country faces more pressing needs, such as providing basic health care to the 44
million Americans lacking health coverage, investing in our public schools to
help ensure a strong economy in the years to come, and supporting working
families.
We may all harbor secret fantasies of waking to find Ed
McMahon standing on our doorstep or becoming an early investor in the next
technological breakthrough.
For most of us, neither will ever happen. In
the meantime, providing a tax break to a very few of the very wealthiest
Americans is bad public policy.
Ross can be reached via e-mail at
cbp@cbp.org
GRAPHIC: 1 DRAWING; Seth Tobocman
LOAD-DATE: September 5, 2000 
