Tax the Wealthy
Why America needs the estate tax
by William H. Gates and Chuck Collins
The American Prospect magazine, June 2002
For more than a decade, a powerful group of special-interest
organizations has waged a multimillion-dollar campaign to turn
public opinion against a tax that falls on the wealthiest 2 percent
of the population. It worked. The "death tax," many
Americans now believe, afflicts family farmers and small business
owners, robbing them of the opportunity to bequeath their lives'
fortunes to their children.
The people pushing this line include the heirs to the Gallo
wine and Mars candy fortunes, along with an organized association
of more than 100 independent newspaper owners. Together with a
veritable antitax industry of think tanks and lobbying firms in
Washington, these groups have formed a potent "death tax
Of course, the vast majority of family farmers will never
owe an estate tax. Rather, the windfall of estate tax repeal will
shower upon the heirs and heiresses of the 3,000 wealthiest estates.
This elite group will inherit billions in appreciated stock and
real estate-significant capital gains, many of which have never
been subject to taxation.
Why do we raise the issue now? Because in a matter of days
the Senate will decide whether to make permanent the 2001 repeal
of the estate tax. It's an issue that has scarcely made the news,
but its consequences will profoundly affect the health of the
Many Americans believe that the estate tax debate has already
played out. After all, the tax's phase-out and eventual repeal
were included in the $1.35 trillion tax cut that President Bush
signed into law last June. But the Bush tax bill includes such
a puzzling assortment of phase-outs, delayed activation dates,
and gimmicks that money guru Jane Bryant Quinn called it "a
contemptible piece of consumer fraud." To mask the bill's
enormous cost in outlying years, its authors included a "sunset"
provision: At the end of 2010, tax rules revert to those in effect
as of May 2001.
Predictably, the original patrons of the tax bill-some of
whom have spent millions in campaign contributions, political
advertising, and lobbying fees to abolish the estate tax- find
the sunset provision unacceptable. They urgently wish to make
repeal of the estate tax permanent. And if they don't succeed
in doing so now, the odds will soon be against them, as budget
deficits grow and the cost of repeal escalates.
If, however, the Senate bows to this lobby's pressures by
permanently repealing the estate tax, the country stands to lose
$800 billion between 2011 and 2021. It's a loss that will significantly
undercut Social Security and Medicare over the next seven decades,
hitting hard as the eldest baby boomers reach retirement age.
The United States also stands to lose one of its most progressive
federal taxes. Only estates worth more than 51 million (or $2
million for couples) are subject to the tax-and the bulk of it
is paid by the fewer than 3,000 estates with assets in excess
of $5 million. Thanks to the Bush tax cut, between now and 2009
the exemptions will rise to $3.5 million for an individual ($7
million for couples).
Some people object to the notion of a tax at death, but taxing
dead multimillionaires is eminently more fair than taxing the
not-so-rich living. Between now and 2052, the intergenerational
transfer of wealth is projected to reach between S41 trillion
and $136 trillion. An estimated one-third to one-half of this
wealth will be transferred by estates worth more than $5 million.
The estate tax, should it remain in place, will therefore be an
increasingly significant progressive source of revenue in the
coming decades. Meanwhile, state budgets, already straining from
plummeting tax revenues, will lose more than $6.5 billion a year
when state-linked revenue from the estate tax is eliminated in
If the direct costs weren't high enough, the indirect ones
could be beyond measure. Philanthropy is not solely inspired by
the tax code, but the estate tax unquestionably provides a powerful
incentive for charitably oriented people to stretch their giving.
Estate tax repeal will most likely reduce charitable giving and
bequests, particularly from estates in excess of $20 million,
by an estimated $5 billion to $6 billion a year. This will certainly
hit large charities that depend on bequests, such as hospitals,
universities, and land conservancies. But it will also affect
the entire nonprofit sector because one-third of all bequest dollars
go toward creating or expanding foundations.
The debate that will decide all this may go by very quickly.
Senators Phil Gramm of Texas and Jon Kyl of Arizona are fervently
pushing to attach permanent repeal as a provision to any moving
legislation. After Gramm threatened to attach the provision to
the energy bill, the Senate Democratic leadership agreed instead
to allow a freestanding vote on the matter before June 28. The
vote currently looks too close to call, as each side pressures
a handful of swing senators. Ultimately, the question is this:
How high a price is America willing to pay in order to give a
handful of millionaires and billionaires a tax break?
Opponents of the estate tax tend to be animated by a zealous
belief in individual success and a profound animosity toward government.
If my success results from my own effort and industry, the thinking
runs, then the estate tax-or any form of taxation-is a form of
Like the "great man" theory of history, our dominant
"great man" theory of wealth creation borders on mythology.
Such folklore fills the pages of business magazines. In a recent
interview, one chief of a global corporation was asked to justify
his enormous compensation package. He responded, "I created
over $300 billion in shareholder value last year, so I deserve
to be greatly rewarded." The operative word here is "I."
There was no mention of the share of wealth created by the company's
other 180,000 employees. From this sort of thinking, it is a short
distance to, "It's all mine" and, "Government has
no business taking any part of it."
There is no question that some people accumulate great wealth
through hard work, intelligence, creativity, and sacrifice. Individuals
do make a difference, and it is important to recognize individual
achievement. Yet it is equally important to acknowledge the influence
of other factors, such as luck, privilege, other people's efforts,
and society's investment in the creation of individual wealth.
Consider the many components of the social framework that
enable great wealth to be built in the United States. Among them
are a patent system, enforceable contracts, open courts, property
ownership records, protection against crime and external threats,
and public education. Even the stock market is a form of socially
created wealth that provides liquidity to enterprises. David Blitzer,
the chief investment strategist at Standard and Poors, recently
wrote, "Financial markets are as much a social contract as
is democratic government." When faith in this social system
is shaken, as it has been by recent breaches of trust, we see
how quickly individual wealth evaporates.
Some potential beneficiaries of estate tax repeal are well
aware of the dynamic relationship between individual wealth and
the society in which it's produced. Last year, Responsible Wealth
(an organization co-founded by co-author Chuck Collins) circulated
a petition in support of reforming, but not eliminating, the tax.
More than 1,100 business leaders and investors who will pay estate
taxes in the future signed it, including George Soros, Ted Turner,
and David Rockefeller Jr., as well as hundreds of small-business
owners and "millionaires next door" whose wealth totals
between $1 million and $10 million.
Bootstrap sagas and "great man" theories reflect
deep strains of American self-perception, but a countervailing
view of wealth also claims roots in this country's history. In
response to the dramatically unequal distribution of wealth in
the first Gilded Age, Andrew Carnegie wrote The Gospel of Wealth,
which proposed to address these disparities through steep inheritance
taxes and aggressive charitable giving.
Republican President Theodore Roosevelt also believed that
society had a claim on the accumulated fortunes of the very wealthy,
thanks to its role in creating those fortunes. In his 1906 State
of the Union address, Roosevelt proposed the creation of a federal
inheritance tax. He explained: "The man of great wealth owes
a peculiar obligation to the State because he derives special
advantages from the mere existence of government." As Roosevelt
further argued in a June 1907 speech: "Most great civilized
countries have an income tax and an inheritance tax. In my judgment
both should be part of our system of federal taxation." Such
taxation, he noted, should "be aimed merely at the inheritance
or transmission in their entirety of those fortunes swollen beyond
all healthy limits."
No doubt Roosevelt would consider the great income and wealth
inequalities of our second Gilded Age reason to increase rather
than to eliminate the one tax we have that limits the buildup
of hereditary concentrations of wealth. Roosevelt and others of
his day understood that the American experiment was an attempt
to balance economic liberty and free enterprise, on the one hand,
with a traditional concern about democracy and the dangers of
concentrated wealth and power, on the other. The estate tax, adopted
in 1916, was one of the means by which Americans rejected the
Old World, with its political and economic monarchies.
The upcoming vote on the estate tax will tell us much about
the Senate's ability to maintain fiscal discipline at a time of
war and budget deficits. Responsible senators should vote against
making repeal of the estate tax permanent. They should open the
next year with an honest debate about the dangers of wholesale
repeal and the possibilities for meaningful reform.
If need be, Congress should explore the possibility of linking
estate tax revenue to the Social Security trust fund, providing
long-term solvency for the fund without increasing payroll taxes
or reducing retiree benefits. But Congress should reject the notion
of wholesale repeal in the short term because it is fiscally reckless-and
in the long term because we recognize the importance of protecting
our democracy from a further buildup of hereditary wealth.
WILLIAM H. GATES SR. and CHUCK COLLINS are co-authors of the
forthcoming book, Wealth and Our Commonwealth: Why America Should
Tax Accumulated Fortunes, which will be published by Beacon Press.
To become involved in the effort to preserve the estate tax visit