We'll Always Have Paris

Defenders of the estate tax need to wise up: good yarns and specious moralizing will always trump the facts.

| Wed Apr. 20, 2005 3:00 AM EDT

A guilty admission: After the House voted to repeal the estate tax last week and I settled down to write this column, the first thing that came to mind were numbers. Statistics, figures, percentages, all rose up as what I thought was the best way to argue against repeal.

First I'd note—in disbelief!—that roughly 70 percent of Americans support estate tax repeal, despite the fact that the tax affects, at most, 1.5 percent of the population: those with estates worth more than $2 million at the time of death. Then tack on a note that only 300 small farms and businesses paid the tax last year, and that number would decrease to a scant fifty by 2011 under a Democratic proposal to lift the exemption. Some huffing about how Americans are supporting a repeal that would mostly benefit billionaires. Next a quick click over to the Center on Budget and Policy Priorities to find that, in these times of back-breaking deficits, estate tax repeal would force the federal government to forego $1 trillion in revenues over the next decade, including interest costs. Oh, and maybe a wonky little quip about how we could use that money to cover half of Social Security's long-term imbalances.

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But forget all that. As the estate tax bill moves to the Senate—where it will likely die, but who knows?—it's time to figure out how a bill that would affect only the ultra-wealthy has come this far, and how Democrats can stop it before it's too late.

One of the lessons of Death By a Thousand Cuts, the new book by Michael Graetz and Ian Shapiro chronicling the rise of the estate tax repeal movement, was that dry statistics simply don't matter. It's not possible to win a debate like this simply by bringing "the facts" to the public's attention. Yes, rationally, voters should be able to see that the estate tax affects only the top 1 percent of the population. But a large measure of irrationality comes into play here: Polls show that around 20 percent of Americans think they themselves are in the top 1 percent of the income distribution, and another 20 percent believe they'll reach that point soon. Fantastic visions of upward mobility are all part of the American dream, and no politician would dare tell voters that most of them won't actually reach the upper rungs.

As Graetz and Shapiro tell it, the vast coalition of estate tax opponents—including billionaires, small-business and farm owners, and anti-tax ideologues—exploited these sorts of quirks in the public psyche to make their case. Rather than fight the numbers game, the repeal movement fell back on moral arguments, albeit specious ones, in making its case against the estate tax. "The estate tax is double taxation!" (Actually, much of the income on large estates, like appreciated value on assets, has never been taxed.) "The estate tax forces families to liquidate their businesses!" (Well, no, as economists Bill Gale and Joel Slemrod have shown, there is almost never any need for this.) "It's a death tax!" (Not for most people.) Nevertheless, the raw appeals were powerful—who wouldn't oppose a tax on the dying?

Opponents of the estate tax, or "death tax" as they called it, also used stories to make their case, the sort of emotional tales that trump statistics every time. There was Chester Thigpen, a grandchild of slaves, who built up the family "Tree Farm" out of a couple of small land purchases and one inheritance. In 1995, Thigpen testified before the Ways and Means Committee against the estate tax, stringing together a rather heart-wrenching plea: "Our Tree Farm made it possible to put our five children through college." And the kicker: "My children might have to break up the Tree Farm or sell off timber to pay the estate taxes" when he died.

The Heritage Foundation, the Washington Times, and other estate tax opponents recycled Thigpen's story over and over again. In 2003 a cover story on the estate taxe in the Washington Post Magazine brought Thigpen's plaintive tale back to light. Never mind that the story was misleading—Thigpen's estate was likely valued too low for the estate tax to apply—it was the storytelling that counted. And there were plenty more where that came from: Tina Brown, a 38-year-old diagnosed with ovarian cancer who spent her dying weeks and days dealing with tax lawyers in order to preserve her estate; or David Pankonin, who will need to sell off assets from his 144-year-old family farm supply business to comply with the code. After such stories, who can think of statistics?

Liberals who favor keeping the estate tax—it is, after all, the most progressive tax on the books—in order to fund schools and highways and retirement pensions have nothing in reply. The Center on Budget and Policy Priorities, one of the few progressive think tanks that spends much time on the issue, continues to put out dry press releases on the subject, with titles like "Estate Tax Could Yield Much-Needed Revenue," filled with percent symbols and dollar signs. It's gripping stuff for policy junkies, but pure soporific to the rest of the country. While the Heritage Foundation was handing out talking points and tear-jerking anecdotes to any Republican who needed ammunition, Democrats who wanted to build a case either had to wade through a 515-page Brookings policy brief or come up with stories on their own. It's no surprise which side won. (Graetz and Shapiro also note that liberal Democrats grew far too complacent during the 1990s, confident that estate tax repeal would be vetoed by Bill Clinton and hence, saw no need to build up a movement defending the tax.)

But the moral case for the estate tax shouldn't be all that hard to lay out: The United States was founded on the ideal of meritocracy, where income was earned by the sweat of one's brow, not handed down. To a large extent, the vast inequality currently in America cramps that ideal, and as it grows larger, we run into a simple numbers problem: the chance increases that someone wealthy and not so bright will take the place of someone poor but hard-working and bright, in universities, or in the government, or anywhere else.

It's impossible and undesirable to get rid of inequality altogether, but certainly excesses can be curbed at the margins. And here's where the estate tax should come in: There's no reason an heiress like Paris Hilton needs to inherit her full $30 million instead of the $17 million or so she would reap after estate taxes. The early American colonists fled to the New World in part to escape a European continent bogged down by just that sort of lazy and opulent class of hereditary aristocrats. No one wants to go back. And yet the Paris Hiltons and Nicole Ritchies of today are now threatening to take the place of the barons and counts of yesteryear. Unless liberals learn to tell that story, the estate tax will be gone before they know it.

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