New York — The estate tax — or “death tax” as those in support of its repeal have called it — is an important and functional aspect of our tax system. Created in the progressive era to encourage class mobility, it levies a tax on the value of an individual’s property and assets after death.
This month, the House of Representatives voted to phase out the estate tax by 2011. The bill was approved, 274-154, and will go to the Senate. A similar proposal passed the Congress last year but was vetoed by then President Bill Clinton.
Supporters of the repeal assert that the tax is unfair because it amounts to “double taxation,” or taxing income that has already been taxed once. They also contend that the repeal of the estate tax would result in a fairer tax policy for all Americans and end the current disincentive for seniors who want to leave money to their children. Supporters also maintain that the projected budget surpluses could amply cover the lost revenue.
However, the assertion that the estate tax taxes money that was already subject to income tax is simply not true. A significant portion of the value of all estates — and a majority of the value of the largest estates — has never been subject to taxation as income.
Under current law, a newly gained asset is subject to income tax only when the asset is sold, when it is taxed under the laws governing capital gains. If a person holds on to an asset until he or she dies, however, the heirs inherit the untaxed asset. Without the estate tax, this income would never be properly taxed.
Jewish communal officials, particularly, worry that repeal of the estate tax will adversely affect Jewish philanthropic giving, while the resulting cuts in overall government revenues would almost assuredly hurt social programs worst — many of which are administered by the Jewish community using government funds.
Only for the rich
In the United States today, the rich and the super-rich alone would benefit from the repeal. The size of an estate must already exceed $675,000 in order to be taxed. This figure is projected to rise to $1 million by 2006.
Only 47,483 estates were taxed in 1998, according to IRS data, and they represented less than two percent of the 2.3 million people who died that year. In other words, 98 out of every 100 people who die in the foreseeable future will face no estate tax whatsoever.
Repeal of the estate tax would provide massive benefits solely to the wealthiest and highest-income citizens of the country. Yet people such as William Gates Sr., father of Microsoft founder Bill Gates, and financiers George Soros and Warren Buffett, as well as Jewish philanthropists Edith and Henry Everett have come out against the repeal, agreeing that it would unfairly reward the rich.
There would be a high cost for providing these benefits to the rich. The federal revenue loss would be about $60 billion a year when the repeal is fully in effect a decade from now, while states would lose another $9 billion in estate tax revenues.
Although the tax accounts for less than 1.5 percent of total federal revenues, it is not an insubstantial figure. This revenue could be used now when it is needed the most for education, Social Security reform or Medicare improvement.
Clearly many low and moderate income workers need tax relief, especially married couples. But such cuts must come only after the apparent economic downturn’s effect on the budget surplus is fully assessed and after federal spending priorities are set.
Finally and perhaps most significant, as part of his faith-based initiative, President Bush has been promoting charitable giving.
Jewish tradition teaches us that religious leaders must not only perceive an obligation to give tzedakah (usually translated charity) themselves, but must also assume the commitment to stimulate others to give — and to give what they can. This, indeed, is a vital part of out task and our heritage.
The Talmud (Tractate Baba Batra 9b) tells us that “he who causes others to give tzedakah is greater than the giver himself.” And in the Torah (Deuteronomy 16:17), we read, “Everyone shall give as he is able, according to the blessing of the Lord your God, which He has given you.”
Elimination of the estate tax would remove an enormous tax incentive for the wealthy to give donations to charitable, philanthropic and educational organizations. Current estate tax law includes an unlimited charitable deduction; no estate tax is due on funds bequeathed to charities.
Therefore, to avoid the tax, the largest estates donate vast amounts before and after death. Research on the effect of the estate tax on charitable giving has consistently shown that levying estate taxes increases the amount of charitable bequests. Last year, Treasury Secretary Lawrence Summers estimated that the loss in contributions could reach $6 billion a year.
This is not the time to repeal the estate tax.
Rabbi Jerome Epstein is the executive vice-president of United Synagogue of Conservative Judaism. He recently launched USCJ’s public policy campaign to defeat legislative efforts to repeal the estate tax.
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