Michael D. Coleman, Ph. D.

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Estate Taxes Are Needed To Protect Democracy

The crucial issue missing from the current argument regarding President Bush’s frantic push to do away with the so-called “death tax” is the larger ramification for our democratic institutions. We do not need the estate tax to raise money for the government, we need an estate tax to protect democracy, and to fund our charitable institutions. The estate tax has been one of the main bulwarks of democracy in the United States since colonial times and there are good reasons for this.

Thomas Jefferson was well aware that we were founding a government based on a meritocracy, where every man and woman should be given the opportunity to rise in society based on the merits of their own work. This is why we have flourished over the years as the “land of opportunity.” We have avoided becoming an aristocracy where only those who inherit great estates have the opportunity to flourish. Jefferson supported the estate tax because he realized that if too much wealth accumulates in too few hands, those few hands would have the wherewithal to buy the politicians and create laws for their own selfish benefit.

Let’s use Bill Gates as an example of someone who will have to pay estate tax. Do we really want his son to inherit 40 billion dollars? Wouldn’t it be better if the estate tax law forces Gates to donate the bulk of his money to his favorite charities or to set up private foundations for the public good? Wealthy people do not give the majority of their estates to churches and charities primarily out of altruistic sentiments. I can assure you that if there were no estate tax, there would be no Ford Foundation, Rockefeller Foundation, or Getty Center. The great monetary value of the estate tax comes not from the money it raises for the government, but from the money it raises for our charitable institutions as the wealthy strive to avoid paying the tax. Bush’s headlong rush to eliminate the estate tax will devastate our churches and our charitable institutions.

The argument in favor of eliminating estate taxes contain some inherent lies, including:

Lie number 1. The estate tax is “unfair” because it taxes money twice; once when you earn it, and again when you die.

The truth: All great estates are built precisely by not paying tax on the growth of assets. The great engines of amassing wealth -- stock ownership, real estate empires, and privately held businesses -- do not pay any tax on the growth of assets until the assets are sold. The wealthy never “sell”, they just do “tax free exchanges”. Bill Gates has not paid one cent of tax on his 40 billion in Microsoft stock! Up to now, Microsoft has never paid a taxable dividend so Bill Gates’ net worth has never been taxed.

Lie number 2. The estate tax unfairly causes some families to lose their family farms or their small family businesses because these have to be sold to pay the tax.

The truth: In the past, when estate tax exemptions were too low, this was occasionally a problem, but not now. With the simplest of planning, any family can pass on a $2 million farm or business free of estate taxes. With more elaborate planning, an estate up to $10 million can be passed on free of estate tax. No one needs a larger exemption than this.

Talk to your congressman or your senator. Don’t let them sell our democracy to the highest bidders — the wealthy few. Consider, for a moment, the country of Colombia. Do you know where most of the great landholders in Colombia got their land? From Queen Isabella of Spain, the same Queen that sponsored Columbus in 1492! After all these centuries, why do these same families still own all the land? Why do these same families now also own all the banks and all the airlines? Because Colombia does not have an effective estate tax. Is this what we want for our children’s future?

In every generation, freedom and democracy require our constant vigilance against the corrupting influences of too much wealth, and therefore too much power, in too few hands. Do not let our generation be the one to be tricked into selling our children’s birthright. We need an estate tax, not to raise money for the government, but to protect democracy from being taken over by the super rich. The estate tax is exceedingly fair; it simply forces the super wealthy to look beyond their narrow, selfish motives, and to become philanthropists in spite of themselves. We need the estate tax for the long-term financial health of our churches, charitable foundations, and — above all — our democracy.