Jacob Heilbrunn

Kill the Estate Tax

It's time to kill the estate tax. End it, don't mend it. So says Ray D. Madoff, a professor at Boston College Law School, in today's New York Times.

 His point is simple. Americans don't believe in the tax. The idea of confiscating wealth at death has itself become toxic for the Democratic party. It amounts, in essence, to a double tax on income. Originally designed to break up the enormous concentration of wealth in America, the estate tax has now run its course. Already Obama has acceded to lowering it to 35 percent for the next two years. Writing in the Washington Post, Rep. Chris Van Hollen sounds the traditional Democratic mantra about the iniquities of failing to tax estates at a higher rate.

But as Madoff puts it,

After all, the Democrats have already lost the battle. The president’s proposal is fresh evidence that even Democrats have given up championing the fundamental value that the estate tax was originally intended to promote. This tax, first enacted in 1916, was never intended to be simply a device for raising revenue. Rather, it was meant to address the phenomenon of a small number of Americans controlling large amounts of the country’s wealth — which was considered a national problem.

Today not so much. Madoff's suggestion is to tax inherited wealth as income. My guess is that it wouldn't quite work that way. Instead, it would probably enjoy the same status as capital gains. Perhaps the rate would be around 15 percent. Either way, it would end the status of the estate tax as a special one, onerous for small businesses.

President Obama has indicated that he wants to overhaul the tax code, which makes sense. The last big reform came in 1986. Instead of reforming the estate tax, Democrats should wise up. In killing the death tax, they would deal a potentially fatal blow to the idea that they're simply a tax and spend party out to gore the wealthy. The estate tax isn't really all that important except to the current identity of the Democratic party, which wants to be perceived as standing up for the common man against the rich.

Of course Obama has already kicked up a brouhaha inside the party over his readiness to compromise--i.e., jettison Democratic doctrine--by extending the Bush tax cuts. As Doyle McManus notes,

It was a Clintonian exercise in practical politics: He abandoned one of his most fervently argued positions, but the result was that he probably improved his own political standing in both the short term and the long term.

The odds are that more such betrayals loom ahead.