The estate tax: Compromise to revive it a reasonable solution

It proved such a pleasant experience last week explaining that Democrats ought to emphasize fair and logical persuasion instead of punishment in trying to deny high-income people the continuation of their Bush tax cuts.

So let us try something a touch more ambitious. Let us stand up for the estate tax.

The actual idea of the estate tax is … well, I would not call it punishment, exactly.

What happened in the early part of the last century was that a very few Americans began acquiring, then growing and consolidating, most of the wealth. That old trust-buster, Teddy Roosevelt, deemed this situation unhealthy. He thought America could not long survive such a deep and wide chasm between most of the people and a few of the people.

The thinking was that a free and democratic society might not work if a few people were obscenely richer than everyone else, depriving the society of shared experience and shared purpose and shared influence.

So we instituted a tax on the largest estates so that government could take a share off the top for the benefit of all and bring down the size of these estates before they got divvied up among heirs.

In recent decades, Republicans began to despise Teddy’s notion. They said we were un-American and vultures to raid hard-earned fortunes on the sad occasion of a patriarch’s, or matriarch’s, death.

So now we find ourselves at a crossroads. The estate tax had been drawn down to nothing over the past decade. By law, it would have reverted next year to its former level — 55 percent of everything in excess of $1 million — unless we did something.

Republicans wish to do away with it altogether but have compromised with President Obama on a centrist Democratic proposal that is reviled by liberal Democrats as too timid and too much of a sop to the richest people.

The compromise begins levying the tax only on portions of individual estates exceeding $5 million, and then at 35 percent, not 55 percent.

As usual, at least lately, I find liberal Democrats entirely too gleeful about punitive taxation on the rich people they seem to hate.

A million dollars is, actually, not an obscene fortune anymore. Any tax taking more than half strikes me as heavy-handed.

Also as usual, I find Republicans entirely too obliging to obscenely rich people. I also find them hypocritical in their advocacy of deficit-reduction when they say the deficit problem exists only on the spending side, not the revenue side.

That would be true only if Republicans could identify several hundred billion dollars’ worth of spending reductions. They can’t.

So I rather like the compromise. Any individual’s estate of less than $5 million could be passed on to heirs tax-free. Any portion of an individual estate over $5 million would lose 35 percent to the government before the holdings got passed on.

That would affect only one-fourth of 1 percent of estates.

Let’s do some quick and maybe oversimplified calculations, just to give you an idea: An individual estate of $10 million would be taxed at 35 percent of the $5 million in excess of $5 million, for an amount of $1.75 million. The heirs would still split up $8.25 million.

A billionaire’s estate would be taxed at 35 percent of the $995 million in excess of $5 million, or by approximately $348 million, leaving the heirs approximately $652 million.

Everyone gets fed and the federal government nets an estimated $300 billion over the next decade from a mere quarter of 1 percent of its taxpayers, these being the few thousand among us waltzing away with hundreds of millions of inherited dollars.

It’s a heck of a deal all the way around, assuming the money goes for deficit reduction, as it must and as we should insist.

John Brummett is an award-winning columnist for the Arkansas News Bureau in Little Rock and author of “High Wire,” a book about Bill Clinton’s first year as president. His e-mail address is jbrummett@ arkansasnews.com.