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Politics Heat Up Death Tax Debate

The debate on the repeal of the U.S. inheritance tax is heating up. A few Republicans seem to have second thoughts about complete repeal, while some Democrats are enthusiastic supporters. Recently, Warren Buffet, Bill Gates Sr., and George Soros waded into the fray, arguing that the tax should be preserved, and the media jumped on the story. When representatives of three of America's wealthiest families maintain that the government should keep their wealth from their kids, the story not only fits the media's liberal bias, but has that "man bites dog" quality that gives an article legs.

The three were joined by over 300 individuals, "who will owe or who have paid estate taxes under current law," in an on-line petition sponsored by something called "Responsible Wealth: Call to Preserve the Estate Tax" ( Other notables on the list include several Rockefellers, Susan Packard Orr (Hewlett Packard), Paul Newman, Norman Lear, Ben Cohen (Ben & Jerry's), and John Kenneth Galbraith. The petition contains a disclaimer that signers were not asked "to provide evidence of estate tax liability." Most of the signers do not identify themselves beyond their hometowns. Of 178 identified by occupational affiliation, 34 are associated with universities; 22 are with foundations; 21 are attorneys, CPAs or in the insurance industry; and a dozen are with social services agencies. They lived in 28 states with California (53), New York (33), Massachusetts (21), Pennsylvania (14) and Washington (11) providing the majority of signatures. These are not, as newspapers suggested, "over 300 of America's wealthiest people."

Gates, Buffett and Soros seem to support the death tax for three reasons: taxing wealth is good for America as it reduces concentration of economic power; taxing wealth lessens the chances of ruining inheritors' characters; and removing the estate tax would reduce charitable giving. All of these arguments seem ingenuous. If wealth accumulation is power, why not tax accumulated wealth during life? Why should the wealthy avoid death taxes by creating enormous private foundations headed by their families (thus maintaining power)? Would inheritors be less spoiled by half of large fortunes than they would by the whole thing? Isn't character more a function of hands-on parenting and a family'values than the structure of one's estate?

If we really want to incentivize charitable giving, should we wait until death? Perhaps the repeal of inheritance taxes would help us all to look at the real motivations and costs of charity. Society needs more entrepreneurial philanthropy, more involvement by donors, more who will give their time--not just cash. Real philanthropy is distorted by the current tax structure.

The opinions expressed by Buffett, Gates and Soros put them in the position to be used as pawns in the current political debate. Tax treatment of estates, however, will not be determined by enlighten debates, but by political dynamics. President Bush's proposal will be compromised--but the reformed estate tax law will be kinder to family businesses.




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