Money talks

May 08, 2006

If you mistakenly believe that the federal estate tax forces lots of families to sell off their farms and small businesses, you can pretty much thank 18 of America's wealthiest families for that common but false myth.

We're talking about super-rich families whose wealth stems from not farms or small businesses but from having founded Wal-Mart, Campbell Soup, Cox newspapers, the Mars candy company, the Gallo winery and so on.

Altogether, these families are worth an estimated $186 billion, according to a new report. And they've collectively spent tens of millions of dollars to pay for an aggressive but dishonest lobbying campaign by various front organizations, such as the American Family Business Institute, to repeal the estate tax - a move that would save them an estimated $72 billion at inheritance time.

The report - by the independent nonprofit Public Citizen - says this "stealth" campaign has inaccurately claimed that the estate tax destroys family farms and businesses, that the tax costs more to collect than it brings into federal coffers, and that it represents double taxation of income (when most assets of the super-rich are unrealized capital gains that have never been taxed, several studies show).

Under President Bush's 2001 tax cuts, the amounts exempted from the estate tax are rising - to $3.5 million in 2009. In 2010, the tax is repealed for one year. In 2011, it reverts to a $1 million exemption. We've previously supported a permanent threshold at $3.5 million, a compromise suggested by Democrats that would exempt 99.7 percent of all estates. Permanent repeal proponents have failed so far in the Senate, but are expected to launch another such bid this month.

Only a very tiny percentage of all estates - less than 2 percent in 2005, when the exemption was at $1.5 million - pay the estate tax, according to a Congressional Budget Office study last year. At that threshold, the study found, only about 109 estates a year would involve farms and small businesses with insufficient liquid assets to pay their estate taxes. With a $3.5 million exemption, that drops to fewer than 50 such estates a year.

The United States has had an estate tax since 1916. It is a progressive tax that falls on the wealthy. It encourages charitable gifts. Repealing it would cost a trillion dollars over the decade starting in 2011, Public Citizen says - more than enough to pay for, say, the estimated cost of the first decade of the Medicare prescription drug benefit.

In a democracy, everyone should be free to debate and lobby for what he or she wants. But when a relative few super-rich families use their wealth to conduct a potentially effective, behind-the-scenes campaign to sway tax law - under the ruse of helping farmers and small-business families- that verges on oligarchy. Don't fall for it.

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