Why would some of the richest people in the world — including William H. Gates Sr. — be campaigning against repeal of the estate tax?
Start with the fact that the superrich already have the best estate-tax planning money can buy; they don't have to worry the way other people do about their spouse or children having to sell the family business to pay the death tax.
Then what do they worry about? According to a report in the Los Angeles Times identifying many of these wealthy individuals, they are "affiliated with foundations that rely heavily on charitable donations," and they're afraid contributions will diminish if the threat of the estate tax is removed.
Gates sought to prove the point by noting that "taxable estates give charities more than twice the amount given by nontaxable estates."
Is that significant? People with more money (taxable estates) donate more than people with less money. It is a function of wealth, not the tax code — a conclusion confirmed in research by William Randolph, a Congressional Budget Office economist.
Moreover, bequests comprise a relatively small percent of charitable giving (only about 8 percent of the $190.2 billion given in 1999, as noted in the American Association of Fundraising's annual report, "Giving USA"). According to a former Treasury Department economist's study, if the tax code has an effect, it is more on the timing of the gifts, causing people to give more at death and less during their lifetimes. In any event, should the force of law be required to make people donate to charity?
Gates repeated other myths about the estate tax.
Myth One: It "affects only the very wealthiest 2 percent of Americans."
Fact: That's how many estates pay the tax each year. The number of Americans affected is many times greater, starting with all of the spouses, children and other heirs whose bequests are reduced by the cost of estate planning, losses incurred in asset sales to pay the tax and the tax itself.
Other people "affected" are those who pay huge sums in estate planning to reduce their tax liability.
Myth Two: Repeal would "cost" the Treasury $294 billion over 10 years, $750 billion between years 10 and 20.
Fact: These estimates fail to consider that the legislation to repeal the estate tax likely would substitute a capital-gains tax and substantially limit a measure that currently cuts such tax liability. That's the version of repeal that Congress twice has passed and that President Bill Clinton vetoed.
It provides that assets would be taxed, not at the time of death but when they are sold.
Myth Three: States also rely on their own estate taxes.
Fact: More and more states are voting to repeal their state inheritance taxes. Last year, voters in Montana and South Dakota voted 67 percent to 33 percent and 79 percent to 21 percent, respectively, to repeal their death taxes.
The question is really one of fairness. The American people understand that there is something terribly wrong when the federal government can tax someone for a lifetime and then come back again when a person dies and take up to 55 percent of whatever is left. That's borne out in the polls. A McLaughlin and Associates poll conducted Jan. 26-27 found that 79 percent of those surveyed approve of death-tax repeal.
Replacing the death tax with a capital-gains tax — as approved by Congress in 1999 and 2000 — is a fair compromise. It puts an end to confiscatory death-tax rates, while ensuring that gains are ultimately taxed. Rightfully, death would no longer be a taxable event.
Jon Kyl is a Republican senator from Arizona.