The latest attempt to reform the Estate, Gift and GST tax failed in the Senate by a vote of 56-42 (60 votes are needed to move the legislation to a vote)
The Bill would have amended the Internal Revenue Code to increase the unified credit against the estate tax to an exclusion equivalent of $5,000,000, as well as repeal the sunset provision for the estate and generation-skipping taxes.
That's me on the far left of the photo pretending I can play golf. Trevor, Linda and I were debating the estate tax with Joe Harriburta (far right), President of the Oakland Metropolitan Chamber of Commerce, between holes.
A cynic might say that 'special interests' (tax practitioners, the philanthropic community and the insurance industry) won - but is this just 'sour grapes' for what may ultimately be a bad idea? I'll try and present both sides' points of views in this post.
On the one side, you have those who take the position that the estate tax serves the public purpose of "leveling the paying field" of wealth between generations. Their argument goes something like this: in a true meritocracy (which is presumed by some who espouse this proposition to be the best available form of government), Jefferson's "all [people] are created equal" aspires to economic equality at birth. Inheritances preserve the aristocracy against which Americans have always rebelled. This point of view is maintained by an odd consortium of charities, life insurance companies, tax advisors, lawyers, progressives and democrats. Warren Buffet (see a National Review article summarizing Buffet's point of view) and William H. Gates, Sr. are prominent defenders of the tax. The New York Times editorial page has also defended the tax.
The opposing point of view is that the accumulation of weatlh is heavily taxed to begin with, and that by taxing successful estates, we are essentially penalizing success. "Chicago School" economics demonstrates that greater economic growth is achieved through less regulation and less taxation. Taxing wealth on transfers from the senior to junior generations penalizes successful family-owned businesses and farms that often are transferred directly to the children and lineal descendants of the current owners. The nation's wealth was developed from such family-owned businesses and farms since the 17th century. This point of view is maintained by business interests, economists and Republicans. An excellent summary of the anti-estate-tax point of view can be found at http://www.deathtax.com/, a website maintained by the family-owned Seattle Times Co. and http://www.nodeathtax.org/, a project of the "American Family Business Institute."
So where's our law firm on this issue? As you might imagine, taxes in general offend my libertarian instincts. At the same time, they do motivate a number of very wealthy people to seek out our services. Self-interest aside, my job is to direct the resources of my clients where they want to see them go, not where Congress would like to see their money spent. It is a lot easier to plan from the perspective of relative certainty about the structure of future laws - tax and others.
Frankly, it is the lack of certainty that defeats both sides of this issue. If there certainly were going to be a tax, we (personal wealth and tax advisors) could engineer trust structures to honor the intent of our clients and maximize bequests. The problem is that clients, being human, are not really fond of planning for their eventual demise, and if the uncertainty in the law can be interposed as an excuse to avoid the difficult subject of their death, why then there's the gremlin.
In economic terms, the principle of certainty in tax policy may be as important as the content of the policy itself. For example, the near certainty that ERISA-qualified retirement plans will defer income taxes to future years motivates millions of employees to engage in substantial savings, with the economically-favorable consequences of capital formation and support of capital markets as well as some incentive to set and maintain long-term savings objectives for individual families. If we were debating whether or not to repeal the tax deferral benefits of qualified retirement plans, is there any doubt that we would find the uncertainty alone would have a deleterious impact on retirement savings?
Further, the lack of certainty keeps the wealthy in this sort of "no-planning limbo," by which they await legislative activity from the sidelines, hoping against hope that some new law will rescue their families from a perceived or actual future tax liability. So the necessary planning that would direct their bequests, and that would reassure their heirs and support their charities, simply is not done. As a result, the palliative effects of tax planning that the pro-estate-tax camp desires cannot occur. Deadlock is, not surprisingly, bad tax policy.
So, regardless of whether you are in the pro-estate-tax camp or the anti-estate-tax camp, this is a time to come together and get a permanent solution in place. The political reality is that neither side is going to have any kind of all-or-nothing victory here; indeed such a victory would only increase the likelihood that it will not survive the next Congress, or the next, or the next. This is an area where a firm, bipartisan consensus on what is fair and what works on a long-term basis for the Country needs to be struck.
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