"Death Tax" Deception
Who's behind the movement
to repeal the nation's
only tax on inherited wealth?
by Rosie Hunter and Chuck
Dollars and Sense magazine,
The federal estate tax, or "death
tax," isn't dead yet, but a powerful clique of wealthy families
and interest groups will stop at nothing to kill it. Their movement
makes small business owners and family farmers its poster boys.
But those who stand to gain the most from repeal are a few thousand
very wealthy households. The effort to turn the public against
the estate tax, and ultimately abolish it, is a case study in
conservative movement tactics-the campaign uses distorted facts,
dirty tricks, and front groups, and it's bent on repealing the
nation's only tax on inherited wealth.
The decade-long public relations and lobbying
campaign seemed to pay off when President George W. Bush signed
his $1.35 trillion tax cut into law in 2001. The bill included
a gradual phase-out of the estate tax over ten years. But because
the tax bill-a bizarre assortment of delayed activation dates
and gimmicks that money guru Jane Bryant Quinn called "a
contemptible piece of consumer fraud"-was structured to "sunset"
at the end of 2010, the estate tax will be fully repealed for
only one year, after which tax rules revert back to what they
were before passage of the bill.
The anti-estate tax lobby is now pushing
hard to make repeal permanent. With Republicans back in control
of both houses of Congress, repeal proponents on both sides of
the aisle are emboldened. And they understand that they must move
quickly because as the budget deficit grows, permanent repeal
will become politically more difficult to justify.
Can this juggernaut be stopped? Perhaps,
but only if progressives take a hard look at the anti-estate tax
campaign, debunk its claims-and its "grassroots" facade-and
then organize like never before.
THE CASE FOR PRESERVING AN ESTATE TAX
Abolishing the estate tax would further
concentrate the nation's wealth in the hands of the super-rich
at a time when the distribution of wealth is already more unequal
than at any point since the 1920s. It would also drain resources
from strapped states and charities. Among the pressing budgetary
reasons to preserve the tax are these:
* Making the repeal of the estate tax
permanent would contribute to a fiscal train wreck, draining government
coffers of $850 billion between 2011 and 2021.
* Repeal would eliminate one of the few
progressive taxes in our federal system, resulting in the transfer
of hundreds of billions of dollars to the trust funds of the nation's
wealthiest families while shifting the burden of taxation (or
cuts in services) onto those less able to pay.
* States-already straining to balance
their budgets-stand to lose $9 billion a year in state-linked
revenue by 2010 as a result of the planned estate tax phase out.
* Estate tax repeal would also shrink
charitable giving and bequests, particularly from estates in excess
of $20 million. Without the incentives provided by the estate
tax (which encourages charitable bequests during life, in anticipation
of the tax, as well as at death), the Treasury Department estimates
that charitable giving may decline as much as $6 billion a year.
But the estate tax was meant to do more
than bolster budgets and aid charities. From its inception, it
was meant to ward off the emergence of a hereditary aristocracy
in the United States. Established in 1916, the tax was a populist
response to the excesses of the Gilded Age. President Theodore
Roosevelt justified it by arguing that society has a claim upon
the fortunes of its wealthy. Roosevelt pointed out that "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."
A number of modern-day millionaires-who
are themselves subject to the tax-understand its historical importance.
As part of the opposition to repeal, over 1,200 wealthy individuals
signed a petition calling for preserving-but reforming-the tax.
The signers (who include William H. Gates, Sr., George Soros,
and Ted Turner) argue that the tax is an essential means to moderate
the excessive build-up of hereditary wealth and power. Investor
Warren Buffett argued in the New York Times that repealing the
estate tax would be comparable to "choosing the 2020 Olympic
team by picking the eldest sons of the gold-medal winners in the
2000 Olympics...Without the estate tax, you in effect will have
an aristocracy of wealth, which means you pass down the ability
to command the resources of the nation based on heredity rather
than merit." Petition-signers and other activists say they
support raising the cap on exemptions to further reduce the already-miniscule
number of small businesses and farms affected by the tax. For
some, the call to raise exemption levels is in part tactical-a
means to gain congressional support for tax preservation.
THE PUSH FOR REPEAL
How did legislation benefiting only a
narrow slice of the wealthiest Americans advance so far? Who is
behind the push to abolish the estate tax?
Repeal backers describe their movement
as "grassroots," but peek behind the curtain and you
find a well-funded public relations, lobbying, media, and research
apparatus (led by sophisticated operatives, many with deep connections
to the Republican Party).
In the early 1990s, a group including
the heirs to the Mars and Gallo family fortunes embarked on a
long-term effort to eliminate the tax. They enlisted the help
of Patricia Soldano, an Orange County, California, advisor to
wealthy families. She formed a lobbying organization (the "Policy
and Taxation Group") to provide an "outlet" for
wealthy families "interested in communicating their concerns
to members of Congress." Soldano channeled funds to congressional
backers of repeal and hired the powerful lobbying firm Patton
By the mid-1990s, Soldano's outfit and
other early pro-repeal groups had joined together with a veritable
anti-tax industry of think tanks, lobbying firms, and interest
groups in Washington, D.C. to form a powerful "death tax
elimination" lobby. Conservative think tanks, including the
Heritage Foundation and the libertarian National Center for Policy
Analysis, produced "policy backgrounders" criticizing
the estate tax, and made the requisite opeds and TV appearances
as well. The antigovernment group Citizens for a Sound Economy
encouraged its members to lobby their senators and representatives
against the tax. Other groups involved in the anti
estate tax crusade include the private
campaign organization Club for Growth; the political arm of the
libertarian Cato Institute; the American Conservative Union; Grover
Norquist's Americans for Tax Reform; and the 60 Plus Association,
a self-styled conservative alternative to the American Association
of Retired Persons. At the center of the lobbying effort is the
National Federation of Independent Businesses (NFIB), a business
trade association and one of the most influential organizations
in Washington. The NFIB's lobbying web site <www.YesToGrammKyl.com>
sends faxes to Congress urging estate tax repeal.
In 1993, U.S. Representative Christopher
Cox (R-Calif.) introduced the first repeal legislation with just
29 cosponsors. Soon, Sen. Jon Kyl (R-Ariz.) became a chief ally,
along with Reps. Jennifer Dunn (R-Wash.) and John Tanner (D-Tenn.).
Within a year, elimination of the "death tax" occupied
a central plank of the G.O.P.'s 1994 "Contract with America."
By 1998, repeal legislation had over 206 House sponsors including
the entire Republican leadership.
At NFIB's 2002 Small Business Summit,
Bush strategist Karl Rove said "the NFIB and the Bush administration
work hand-in-hand because we see eye-to-eye." Referring to
NFIB's failed effort in June 2002 to make the repeal of the estate
tax permanent, Rove assured his audience, "Don't look at
it as a defeat. This is a war, and we need to make an ongoing
commitment to winning the effort to repeal the death tax."
DEATH TAX LINGO
In perhaps its greatest public relations
feat, the pro-repeal lobby has managed to portray the estate tax
as a "death tax" on most Americans. The phrase suggests
a tax imposed upon death itself, although over 98% of those who
die go untaxed. The "death tax" label has proven a major
asset to the campaign, yet its authorship is disputed. James L.
Martin, president of the 60 Plus Association and Bush family friend,
credits himself. Rep. Dunn credits Seattle Times publisher Frank
Whatever the origin of the tag, Republican
pollster Frank Luntz masterminded its widespread use. Luntz urged
conservative legislators and candidates to exclusively call the
estate tax a "death tax," and in a 1994 memo he suggested
legislators hold anti-estate tax press conferences at local funeral
homes. Republicans employ the "death tax" label so effectively
that the term is now used in the mainstream press.
Martin has thought up plenty of other
labels for the tax as well, including "grim-reaper's tax,"
"grave robber's tax," "cruelest tax," "pine-box
tax," and "success tax." Martin travels the country
to spread the word that "taxing cadavers is gross public
policy," and to ask the public, "Should Uncle Sam, rather
than a blood relative, be the first in line when you die?"
At one point Martin ran a contest to generate new catch phrases;
the winner-"last-grasp tax"-got $100. Martin, Luntz,
and other Republican spin-doctors recognize that success hinges
on how the debate is framed. Martin told The American Prospect,
"It's all a matter of marketing."
DECEPTION DOWN ON THE FARM
Pro-repeal literature is packed with claims
that the estate tax forces working farmers to sell their farms.
When Congress passed legislation to repeal the tax in 2000, it
delivered the bill to President Bill Clinton on a tractor to symbolize
the "down on the farm" effects of the bill. On the campaign
trail later that year, George W. Bush declared, "To keep
farms in the family, we are going to get rid of the death tax!"
Starting in the spring of 2001, a number
of investigative reports began to question the veracity of these
claims. They found that stories of farmers losing the farm to
the estate tax are so rare that experts and investigators have
been unable to find any real examples. Neil Harl, an Iowa State
University economist whose tax advice has made him a household
name among Midwest farmers, said he searched far and wide but
never found a case in which a farm was lost because of estate
taxes. "It's a myth," said Mr. Harl, "M-Y-T-H."
The New York Times reported that when
the pro-repeal American Farm Bureau Foundation was challenged
to produce one real case of a farm that was lost because of the
estate tax, it could not cite a single example. In April 2001,
the Bureau's president sent an urgent memo to its affiliates stating,
"it is crucial for us to be able to provide Congress with
examples of farmers and ranchers who have lost farms... due to
the death tax." Still, no examples were forthcoming.
DISABLED AMERICANS AGAINST THE DEATH TAX?
In early 2001, Responsible Wealth (a project
of the popular education organization United for a Fair Economy)
initiated the petition of wealthy individuals calling for preservation
of the tax. The petition prompted a swift counterattack by the
pro-repeal lobby, which issued a barrage of advertising and media
events to undermine the Responsible Wealth effort. One example
provides an illustration of pro-repeal tactics.
In March of 2001, full-page advertisements
appeared in several daily newspapers around the country including
the Wall Street Journal and the Washington Times. The advertisements
were produced by a new organization, dubbed "Disabled Americans
for Death Tax Relief." Its leader, a young woman from Austin,
Texas, named Erin O'Leary, claimed she had just formed the organization
two weeks earlier and already had over 1,000 members.
O'Leary was "deeply offended by the
callous and heartless comments made by 125 so-called 'millionaire'
signers of the Responsible Wealth ad that appeared in the New
York Times." She alleged that there are "2.5 million
disabled people who are family members of millionaires, a number
that would grow to 8 million over the next thirty years,"
and that with rising medical costs, these individuals needed their
inheritances. The text of the advertisement continued:
In order to live a full life, these Americans
may require medical help, nursing and living assistance far beyond
that which is covered by medical insurance. Warren Buffet, Bill
Gates, Sr. and George Soros believe that these people should be
denied full financial help from their parents.
The "Disabled Americans" stunt
was the creation of conservative communications maven Craig Shirley
(whose public relations firm represents the National Rifle Association,
the Heritage Foundation, and the Republican National Committee).
Fox News and several conservative talk shows kept O'Leary busy
with interviews, but most other news media recognized O'Leary's
advertisement for the charade that it was.
Disabilities experts responded, including
author Marta Russell, who felt that "using disabled people
to front for the interests of the wealthiest members of our society
is an outrage and a disgrace." Russell disputed the claim
that millions of disabled people could be adversely affected by
the tax. O'Leary's figures made no sense given the economic profile
of the disabled population in this country. The disabled are one
of this country's poorest groups, and highly dependent on the
very tax-funded social services that repeal of the estate tax
could put at risk.
SHAPING PUBLIC PERCEPTION
Print and radio advertisements are key
weapons both in molding public perception and attacking members
of Congress who vote against full repeal. The owner of the Seattle
Times, Frank Blethen, sees estate tax repeal as his personal crusade.
(Blethen believes that the estate tax is responsible for the decline
of family-owned newspapers.) He started a website <www.deathtax.com>
and organizes an annual "Death Tax Summit" in Washington,
D.C., to mobilize other independent newspapers and business groups
to lobby Congress.
Blethen has used the Seattle Times as
a vehicle for his anti-estate tax cause, both on the editorial
page and through advertisements, stirring concerns from the paper's
editors about his lack of impartiality. Further, he circulated
the antideath tax ads he developed to other newspaper owners;
they were published in over one hundred independent newspapers
The estate tax is also a favorite issue
for conservative groups seeking to exercise political influence
through issue ads. In the months prior to the 2002 election, pro-repeal
organizations ran estate tax issue ads in South Dakota, Missouri,
Minnesota, lowa, and Arkansas. In Missouri, the United Seniors
Association and Americans for Job Security (phony grassroots organizations
fronting for corporate interests) targeted former Senator Jean
Carnahan's position on the estate tax. In Minnesota, Americans
for Job Security ran full-page newspaper ads attacking the late
Senator Paul Wellstone for voting against full repeal, and flew
a banner at the Minnesota state fair: "Wellstone Quit Taxing
the Dead! "
DIVIDING DIVERSE CONSTITUENCIES
Another pro-repeal strategy has been to
thwart progressive and diverse groups that might be inclined to
preserve the estate tax. Over the past five years, pro-repeal
forces worked to convince the public that the estate tax is particularly
detrimental to women and people of color as well as farmers. In
doing so, they spin an illusion of a rainbow coalition in opposition
to the tax.
For example, the NFIB and front group
called the Small Business Survival Coalition recently organized
press conferences with women business owners and alleged that
"women-not men-are the chief victims of the tax" because
women generally outlive men. They mobilized women's business organizations
including Women Impacting Public Policy and the National Association
of Women Business Owners in support of repeal.
But claims that the estate tax burdens
women business owners are misleading. The great majority of all
businesses fall below the taxable level. Relatively few businesses
of any kind face the tax, and because women-owned (and minority-owned)
businesses are smaller than average, they are affected even more
rarely. As for the argument that women outlive men, the only families
subject to the tax are those who own assets at least 20 times
greater than the net worth of the median family. Therefore few
widows lose any inheritance to the estate tax. And those who do
are among the wealthiest 2% of households, not hard luck cases.
On the other hand, women-and people of color-benefit disproportionately
from social programs (including small business loans and education
spending) funded by the tax.
Anti-estate tax groups have similarly
put forward minority business groups, such as the Hispanic Business
Roundtable and the National Black Chamber of Commerce, as visible
allies. Frank Blethen enlists minority-owned newspapers in opposing
the tax. He tells readers of the www.deathtax.com newsletter that
it is important to "educate" members of Congress that
the estate tax is "a minority and female-owned business issue
and an environmental issue."
In April 2001, billionaire Robert Johnson
of Black Entertainment Television and a group of other African-American
business people ran ads in the New York Times and the Washington
Post. Johnson invoked race in his ads, claiming to speak for African
Americans broadly. The ads asserted that the estate tax unfairly
takes wealth away from the black community and that repeal would
help African Americans gain economic power. Although there are
no statistics available on the number of African Americans subject
to the estate tax, African Americans are clearly far less likely
than white people to inherit fortunes large enough to face taxation.
The median net worth for African-American households (excluding
homeownership) is $1,200, compared to $37,600 for white households.
(The median Hispanic household is lower still, with zero net worth.)
One in four AfricanAmerican households own no positive wealth
at all, compared with one in seven white households. And there
are only two African Americans on the Forbes 400: Oprah Winfrey
and Robert Johnson himself.
Nevertheless, President Bush moved quickly
to quote Johnson in his speech to the Council of Mayors, saying
"as Robert Johnson of Black Entertainment Television argues,
the death tax...weighs heavily on minorities."
Soon after, Bush tried to convince the
members of the National Council of La Raza, a major Latino advocacy
group, to join him in supporting estate tax repeal. Bush described
a Mexican-American taco-shop owner who said he wanted "to
get rid of the death tax so I can pass my business from one generation
to the next." It turned out, as even the Wall Street Journal
noted, the taco shop Bush described was valued at $300,000, far
below the over $1 million exemption the current law allows owners
of businesses. George W. got it wrong. The taco shop would pass
to heirs untaxed, just as the vast majority of small businesses
Like the allegations about small farms
and family enterprises, pro-repeal forces repeat these allegations
about women and people of color over and over through their media
work and lobbying efforts.
A principal tactic of the campaign has
been to get the minnows to front for the whales.
But the truth is, few or no folks are
losing their taco shops-or their farms-to the estate tax. In fact,
in 1998, only 776 estates where family-owned business assets represented
over half the value of the estate were "taxable" under
estate tax rules, out of 47,482 total taxable estates, and 2.3
million individual deaths. So the great majority of estates taxed
under the estate tax are not estates built on family-owned businesses
and farms, but other forms accumulated wealth-stock investments,
nonproductive assets, fourth homes, art collections, luxury items,
ALL OR NOTHING REPEAL
The architects of the repeal effort are
zealots. They advocate nothing short of complete repeal and consistently
oppose any reform or compromise. They understand that partial
reform will not benefit the principal patrons of the repeal effort-the
very wealthy interests who bankroll the campaign would not be
covered by exemptions. (Their wealth is so great it would exceed
even a very high cap.)
But this strategy may backfire when the
groups that have bought into the misrepresentations realize that,
rather than family farmers or small business owners, the vast
majority of whom will never owe any estate tax, the windfall of
estate tax repeal will go to the heirs and heiresses of the country's
3,000 wealthiest estates. This elite group will inherit billions
in appreciated stock and real estate, enormous capital gains that
have never been subject to taxation. The Wall Street Journal has
estimated that George W. Bush's heirs alone would stand to gain
from $6 to $12 million if the tax is repealed, assuming his estate
remains the same size up to his death. Cheney's heirs would save
between $10 and $45 million. And the heirs of the Gallos and Marses
stand to make even more.
In the bid to eliminate the estate tax,
anti-repeal forces have used slick advertising, explicit falsehoods
and deception. But we should not have to endure the triple whammy
of lost federal revenue, state revenue and charitable giving in
order to give a handful of millionaires and billionaires a tax
break, no matter how well disguised in a misinformation campaign.
With Republicans back in control of the
U.S. Senate, the push is already on to permanently repeal the
federal estate tax. For now, even with their new majority and
Democratic party supporters, repeal proponents fall short of the
60 votes they need under budget rules that expire in April 2003.
If the budget rules are not extended, however, they will be able
to advance their anti-estate tax agenda with only a simple majority.
This juggernaut can be stopped, but time is running out. ~
Rosie Hunter is a researcher with United
for a Fair Economy in Boston. Chuck Collins is the Program Director
at United for a Fair Economy and co-author, with William H. Gates,
Sr., of Wealth and Our Commonwealth: Why America Should Tax Accumulated
Fortunes (Beacon Press, January 2003). For information on how
to get involved in efforts to preserve the estate tax, go to <www.faireconomy.org>.