To: George Soros
From: Jude Wanniski
Re: Your Big Heart
Your Wall Street Journal op-ed last Friday on why the U.S. government should continue levying the estate tax on rich guys like you brought tears to my eyes. What a guy! That is, until I got to the part where you reveal that you yourself have no intention of paying the tax and have set up charitable trusts to avoid giving “a large part” of your great wealth to the biggest charity of all, Uncle Sam.
George, we’ve known each other on a casual basis for 20 years and for a time you were even a client of Polyconomics (back when you were getting rich really fast). I have to tell you there is nothing about your analysis I agree with, although you have a point when you say: “Perhaps the only potent argument in favor of abolishing the estate tax is that it accounts for less than 1% of all federal taxes collected. That is because there are so many legal ways to avoid it.” That’s when you bring up your own tax avoidance scheme.
Sen. Phil Gramm [R-TX] is right, George: The estate tax is a “cancer” inside the organic body of the American people. It collects so little revenue because your fellow citizens must devote serious time and energy and after-tax income trying to avoid giving Uncle Sam what they have spent their lifetimes accumulating. Like a cancer, it drains away what otherwise might be a vital source of capital that could flow to young people and minorities who have energy and time, but no capital. It was a tiny little cancer when it was enacted early last century, aimed at getting the ultra-rich to contribute more to the expenses of World War I. It now has metastasized to the point where it is sapping the strength of ordinary people and ordinary families who have to begin planning for death when they are barely out of school.
Gary & Aldona Robbins of Fiscal Associates, who I believe are the foremost experts in estimating the impact that various kinds of taxes have on useful production tell me the estate tax “casts the longest shadow.” By that they mean that it affects almost everyone in one way or another, although only a small percentage of estates wind up having to pay it. While Treasury estimates that repeal would “cost the government” about $140 billion in the first ten years after repeal, the Robbins’s estimate is that repeal would forever increase the revenue flow to the government because of the release of the capital it now burns up.
The reason our Treasury bureaucrats estimate repeal of the estate tax would cost $750 billion in the second decade after repeal in 2010 is based on projections that people of your age and wealth will meet their Maker in that period -- and their families will have to sell 55% of their assets and turn the cash over to Uncle Sam. Imagine the bureaucrats rubbing their hands merely contemplating the passing of Bill Gates, now the richest man in the world! His heirs will have to sell all that Microsoft stock and give it to the government to spend. Which is the better use of capital, would you say?
Your most interesting argument is that “Abolishing the estate tax would remove one of the main incentives for charitable giving. College presidents and directors of cultural and charitable organizations ought to be out in force lobbying against it. It is no exaggeration to say that the Death Tax Elimination Act of 2000 would seriously fray our social fabric.”
Sorry, George, it is not only exaggeration, but you have it exactly backwards. Once the cancer of the Death Tax is cut out, the nation’s wealth would expand at a greater rate, and charitable giving would increase even faster than it has since in the years since the supply-side tax cuts of the Reagan years took effect. Like you, the opponents of the Reagan cuts -- which brought the top tax rate down to 28% from 70% -- argued at the time that charitable giving would dry up when taxpayers no longer needed charitable deductions to lower their taxable incomes. Instead, charitable giving exploded as people had bigger incomes and greater wealth to give.
You end your op-ed by appealing to Republican leaders to stop worrying about your estate and to use the “proceeds” of whatever wealth remains outside your charitable trusts “where it will really count.” What do you say to the Democrats who now agree with Phil Gramm that this is a cancer in the body politic? No Republican said it as well as Senator Ron Wyden, Democrat of Oregon: “The estate tax is a wildly clumsy, inefficient tax that basically is a full-employment program for lawyers and accountants. We ought to be phasing out the estate tax, and we should work toward a tax code that it both progressive and entrepreneurial-friendly.”