Senate Republicans Seek End to Estate Tax
RENEE MONTAGNE, host:
In today's business news, nothing is certain but death and taxes.
Nearly a century ago when he was president, Teddy Roosevelt complained about what he called the aristocracy of wealth in America.
President TEDDY ROOSEVELT: Our aim is to promote prosperity and then to see that prosperity is passed around, that there is a proper division of prosperity.
MONTAGNE: One result was the estate tax. The government continued taxing inherited wealth for the rest of the 20th century. Now Congress may be on the verge of permanently repealing that estate tax. NPR's Kathleen Schalch reports.
KATHLEEN SCHALCH reporting:
Dick Patten's grandparents built a very successful business and lived frugally.
Mr. DICK PATTEN (American Family Business Institute): They gathered a lot. When my grandmother died, the federal estate tax took a big slice of that and, you know, from that point on, I looked at that and said, `That is wrong.'
SCHALCH: Patten is now executive director of the American Family Business Institute, which has campaigned since the early 1990s to get rid of the tax. At first, that idea sounded far-fetched, according to Yale Professor Michael Graetz, co-author of a new book on the battle over the tax. He says for most of the century, the estate tax wasn't even controversial.
Professor MICHAEL GRAETZ (Yale): Until the very late 1990s, everyone thought this was a firm fixture in American taxes. After all, it only applies to the richest 1 or 2 percent of Americans and is one of the most--is the most progressive tax in the federal system, and the thought that it would be repealed was unthinkable.
SCHALCH: But the idea picked up steam. Opponents renamed the tax the death tax.
Prof. GRAETZ: The most important thing they did was they created stories; that is, they found people who could come up and testify who were enormously sympathetic, even though the vast bulk of the money from this tax comes from very wealthy people and not from small businesses or farmers. It was always the small businessman or the farmer who was the person around whom this story evolved.
SCHALCH: There was a problem: The exemption, designed to spare ordinary estates from the tax, hadn't kept pace with inflation, so a growing number of small-business owners and farmers were either paying the tax, or at least worrying about it. Reformers wanted to fix this by raising the exemption. This would have refocused the tax on just the very wealthy. Some suggested lowering the rate as well. But anti-tax strategists, including Grover Norquist, president of Americans for Tax Reform, said no.
Mr. GROVER NORQUIST (Americans for Tax Reform): There are people who are always in favor of lightening the burden and I argued abolition was the only way to progress, that cutting it in half would never get you popular support, because people don't get excited about making something less bad. They get motivated by principle.
SCHALCH: And for Norquist, the principle is simple: People pay taxes on the wealth they accumulate while they're alive, so they shouldn't be taxed again. The abolitionists prevailed. In 2001, as part of a broader tax-cut package, Congress voted to scale back the tax and then repeal it entirely for one year. The House has repeatedly voted to repeal it permanently. And groups like the American Family Business Institute have been pressing the Senate to do the same. Executive director Dick Patten says his group got involved in 15 Senate races in the last election, and helped unseat South Dakota Democrat and minority leader Tom Daschle.
Mr. PATTEN: We invested about half a million dollars, had television, radio. We direct-mailed every senior citizen in the state. We called every single household in the state of South Dakota.
SCHALCH: Now the group's working on wavering senators in several other states with ads like this.
(Soundbite of commercial)
Unidentified Man #1: ...the IRS can bury your family in crippling tax bills. It can cost them everything. What's worse, the death tax is a double tax on all you've worked to do.
SCHALCH: All this is worrisome to Joel Friedman, a senior fellow at the liberal Center on Budget and Policy Priorities.
Mr. JOEL FRIEDMAN (Center on Budget and Policy Priorities): The estimates show that 10 years' worth of repeal would cost the government about a trillion dollars over those 10 years. So the question is, is: How do you make up a trillion-dollar hole in the federal budget, given all the other pressing needs?
SCHALCH: A new organization called the Coalition for America's Priorities is now running newspaper, TV and radio ads like this one, arguing that if Congress gives up revenue from estate taxes, it will have to find the money elsewhere.
(Soundbite of commercial)
Unidentified Man #2: Either someone's taxes are going up, benefits and services like Social Security and Medicare will be cut, or a trillion dollars will be added to the national debt. That's why Americans overwhelmingly favor real reform, not repeal of the estate tax.
SCHALCH: Poll results actually differ, depending on how the question is asked. If asked simply whether they oppose the death tax, most Americans do. If they're asked to balance that against preserving popular government programs, they answer differently. People are somewhat confused about whether their own families would face the estate tax. Some polls indicate that 40 percent of Americans believe they'll be in the top 1 percent of income earners when they die. But author Michael Graetz cautions that this isn't the only reason many oppose the estate tax.
Prof. GRAETZ: There are often times that people don't vote their self-interest. It's not the American way. If the American public is convinced that a tax is unfair, they're going to vote to repeal it even if it doesn't affect them.
SCHALCH: Grover Norquist of Americans for Tax Reform agrees.
Mr. NORQUIST: It says a great deal about the United States that a tax that most people will not personally face, the vast majority of Americans think is unfair.
SCHALCH: Norquist and Graetz both see the estate tax debate as part of a larger philosophical struggle over who should pay for government. For most of the last century, the assumption was that the wealthy should carry more of the burden. But the coming vote on the estate tax may be the clearest signal yet that times are changing.
Kathleen Schalch, NPR News, Washington.
MONTAGNE: The battle over estate taxes continues at npr.org, where former top Clinton White House aide Gene Sperling and anti-tax activist Grover Norquist take sides on the issue.
This is MORNING EDITION from NPR News. I'm Renee Montagne.