Estate Tax Legerdemain

And now to the estate tax repeal movement, that hardy exemplar of conservative disinformation. For those that don't know, the ET (aka the "death tax") is levied upon the highest ranges of inherited wealth as it passes from one generation to the next. Bush's 2001 tax cuts set the wheels in motion for the tax's permanent repeal by scheduling the exemption cap to increase gradually each year (right now it's at $1.5 million). This tax affects the richest 1% of Americans almost exclusively, and yet its rollback got through on the strength of a coordinated lobbying and PR push that was over a decade in the making. Michael Graetz and Ian Shapiro detail this process in their book Death By A Thousand Cuts (which I haven't yet read, but will).

David Cay Johnston explains the general methodology of the anti-estate PR movement thusly in his review of Death by a Thousand Cuts from the May 2005 issue of the American Prospect:

One fundamental that estate-tax opponents grasped is that those who frame the debate also frame the assumptions that go into most news coverage. The reason is practical: Most reporters, especially political reporters, are generalists who rely on the popular symbolism of the moment to make their stories clear and accessible. Change the lens through which an issue is seen, reframe the terms of the debate, and presumption is on your side. Cleverly, and inaccurately, attacking the estate tax as the "death tax" was a key to success. There is no tax on death, though many Americans now believe otherwise. The estate tax, and the gift tax, are levies on the transfer of large fortunes.

President Bush frequently denounces the "death tax" as immoral double taxation. He has not made the same argument against Social Security, Medicare, gasoline, and excise taxes, which, combined with the federal income tax, can be seen as quintuple taxation of the same dollar.

The framing of the estate tax as a "death tax" was a calculated appeal to the intrinsic American value of fairness, as taxing earned wealth twice would clearly be unfair. Obviously many Americans and lawmakers alike found this piece of philosophical sophistry convincing, or at least compelling. But Johnston once again brings us back to reality in an article for today's New York Times that looks at a CBO study on the decline in the number of American farms subject to the tax:

The estate tax raised an estimated $23.4 billion last year. Repeal would shift part of the burden of taxes off the fortunes left by the richest 1 percent of Americans, some of whose fortunes were never taxed, onto the general population. The lost revenue could be made up in three ways: through higher income taxes; reduced government services; or more borrowing, which would pass the burden of current government spending to future generations.

I wonder how many of the "death tax"'s opponents would stick to their guns in light of this inconvenient factoid.

Some opponents advance the more pragmatic claim that the estate tax is a threat to family farms, sucking away money that should be used to keep the business running. Johnston cites an instance of this argument in the same NYT article:

President Bush, the American Farm Bureau Federation and the National Cattlemen's Beef Association have asserted that the estate tax is destroying family farms. None, however, have cited a case of a farm lost to estate taxes, although in June 2001 Mr. Bush said he had talked to such farmers.

Now, let's see what the Center for Budget & Planning Priorities has to say about that:

Farms and family-owned business assets account for less than four percent of all assets in taxable estates valued at less than $5 million. Only a small fraction of the estate tax is paid on the value of farms and small family businesses.

And that was written before the tax was repealed. Doesn't really sound like much of a farm-killer, does it?