Why do Americans hate the estate tax?

The “estate tax” is a tax on money and property transferred from the estate of a dead individual. It’s getting a lot of press recently because it’s set to expire in 2010 (and return in 2011). As it currently stands, 2009’s rate is up to 45% on estates over $3.5 million, and 2011’s will be 55%. As a bit of a side note, I’d like to see the death rate (and suicide rate and gift-giving rate) among wealthy elites in late 2010 compared to the same periods in other years.

As a NYTimes editorial describes, the qualifying threshold right now is so high–$7 million for couples and $3.5 million for individuals–that 99% of estates in America will never qualify for it. Yet according to a Harris Interactive poll cited by Forbes, “two-thirds of those surveyed in 2005, 2006, 2007 and 2009 said they favored “completely eliminating the estate tax, that is, the tax on property left by people who die.” This is despite only 17% of individuals believing they would personally benefit from a repeal of the estate tax.

It’s interesting that only 1% of estates qualify for an estate tax as it’s currently written (though with the expiration of the current estate tax law in 2010, the rate will increase from current levels 10% in 2011 the number, and the number affected could increase due to a triggering of new capital gains provisions), and yet 17% of Americans think they’ll benefit. For one, it indicates that a large number of Americans (the gap between 17% and two-thirds) are not thinking about personal benefit but the fairness of the tax itself. The estate tax is consistently ranked as one of the most unfair taxes the government imposes, compared to income tax, Social Security, excise taxes, etc. After paying taxes on my income once before I could use it to purchase an item, and a second time through sales tax in buying it, why should I have to pay it a third time when I die? If I don’t have any liquidity, why should my transfer of say, an heirloom diamond ring or a family beach house, be restricted because my poor nieces and nephews can’t pay the tax on the expensive property?

Personally, I admit that I’m not unmoved by these arguments, but there’s also a lot to like about the other side as well. First, I should say I hate it when people say “this tax will never affect you”. A tax, or any law, should be good on its merits, not because its unfortunate impacts are limited to a small minority. The first reason is of course, like any disproportionate tax on the rich, that it’s a good way to raise a lot of money, and assuming we’re spending the same amount of money, that will help reduce the amount of taxes collected by the poor(er)–it’s a great progressive taxation scheme. This is just another way we tax the rich more because they benefited so much from the system, and the poor on whose backs their wealth was built could use a little break. Another reason to have an estate tax is that it helps break-up oligarchies of the uber-rich, which might otherwise uncatchably grow generation to generation and come to dominate society. It’s not only about the concentration of power here, but the gradual inability of those without inheritances to penetrate the exclusive sphere, and importantly, stagnation of ability and creativity in that sphere of power.

But what about the gap between 1% and 17%, the number of estates actually affected and the number of people who think they’ll be affected? Surely some have drunk the Republican kool-aid about a “death tax” and how this will be the end of small businesses. I think there’s another group that simply think that they’ll work so hard and make so much money that they’ll end up in that 1%, a sort of nobler and more American version of the classic fool who thinks he’ll be the one to win the lottery. I think a number of the 17% know it’s a good/fair tax to have, but don’t want it just in case they want to be evil in the future–that just in case they get to be in that top echelon of wealth, there will be no estate tax when that happens. It’s like recognizing that there’s a huge tax loophole existing, and wanting to keep it open just in case you’ll want, or be in a position to, use it in the future. Just in case we decide, when we’re rich, that we want to be greedy, we’d like the ability to do so. Perhaps there’s even a group of people who think, “just in case I want to commit a crime one day, I’d like government surveillance to be slightly weaker and defendants’ rights to be slightly stronger.”

Here a good example of this “just in case we want to be evil” phenomenon. Senate Democrats, despite controlling a majority and supermajority of the chamber and complaining about the unfairness of the filibuster refuse to do away with it because each of them harbors some hope of being in a position to hamstring important legislation from the majority when the shoe is on the other foot, even though it would be just as unfair. From Balkinization:

That being said, I think the odds of modifying the Senate rules are close to 0%, unless the Democrats are really willing to confront the oldest continuing myth of the Senate, which is that it is a continuing body whose rules can be amended only in accordance with pre-existing rules, which, as my previous post indicated, requires a 2/3 vote. It is literally inconceivable that Republicans would acquiesce in such a move while the Democrats hold power or, frankly, that Democrats would acquiesce if the situation were reversed. Now perhaps Joe Biden will rule that rules can be changed by a straight majority vote. I still would be extremely doubtful if 50 Democrats would vote for that, simply because they can envision being back in the minority when they will want to torpedo Republican legislation. (After all, the Senate can’t even cure the absolutely pernicious custom of “holds,” which allow single senatorial tyrants to tie up nominations, presumably because each senator envisions the possibility that he/she will want to exercise that bit of petty tyranny him/herself.)