Why These Guys Are Dead Wrong

It must be nice being a billionaire. You get your own jet. You don't have to work. The maitre d' always has a table for you. Better yet, you can afford the moral high ground. Case in point: last week some 120 moneybags, including the Rockefellers, Bill Gates (through his father, who runs Gates' foundation) and financier George Soros, went public with a petition seeking, of all things, to preserve the estate tax. This is high ground, all right. The estate tax, which President Bush wants to wipe out, stands to cut the fortunes of these rich folks by billions when they pass away.

The silver-spoon patrol is getting a lot of attention. After all, if those with the most to lose are willing to suck it up and live with a stiff tax on their money at death--for the good of our economy and out of basic fairness, they say--shouldn't we all? Well, no. Trouble is, the superrich don't represent the wealthy--and there's a meaningful difference. What does Soros, with a net worth of $5 billion, care if the estate tax claims half his wealth? He's still got billions to spread around. This isn't his fight.

Those who really have something at stake are small-business owners and career savers who manage to put away $2 million to $5 million and would like to leave it to their children. These millionaires account for half of all who pay the estate tax, and, believe me, they aren't signing any petition.

Married couples can leave as much as $1.35 million to heirs tax free. That limit rises to $2 million by 2006. This is no small amount, for sure. But above that threshold Uncle Sam takes a hefty slice. The top marginal rate is 55%. Shouldn't parents with, say, $4 million be able to leave $1 million to each of four children? The savings have already been taxed as income or would be taxed as capital gain when heirs tapped it. Yet the estate tax--essentially, double taxation--virtually precludes the moderately rich from bequeathing financial security. This tax may even force the sale or partial liquidation of a farm or family business.

What's the billionaire beef? Basically this: revenue lost from repeal of the estate tax would mean additional tax on the middle class or a reduction in their benefits and services. Further, repeal would lead to a steep drop in charitable giving as the wealthy stop looking for ways to reduce their estates. So righteous are these superrich that, as reported by the New York Times, the only reason Warren Buffet didn't sign was because the petition doesn't go far enough in defending the estate tax, which he insists promotes success based on merit, not bloodline. Buffet likened hand-me-down wealth to "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics."

If only any of this were true. Start with that stuff about lost revenue. The projected 10-year cost of eliminating the estate tax is $236 billion. That's less than 5% of the projected 10-year budget surplus of $5.6 trillion. It's why we're talking about tax cuts. Uncle Sam needs to give back, and he needn't raise taxes or cut services to do it.

And someone please tell me how more money in the pockets of the rich will prompt less charitable giving. Sure, some are focused purely on tax avoidance. They would forsake charitable foundations and trusts to leave everything to the kids. But they are the few. Most people give because they want to. A Heritage Foundation study found that charitable giving since 1930 has remained remarkably constant, relative to personal income and economic output, even though there have been dramatic swings in tax rates. This suggests that tax avoidance is a minor consideration. Philanthropists predicted dire consequences when taxes were cut in 1981 and again in 1986. Both times charitable giving grew.

Ben Cohen, co-founder of Ben & Jerry's Homemade Ice Cream, is one of the rich who signed the petition. Through careful estate-reduction planning, he has already given away a good chunk of the $40 million he got by selling his company last year. But he concedes that even if he didn't need to reduce his estate for tax reasons, "I'd have given it away anyway." He intends to limit what he leaves to heirs to encourage them to lead productive lives--and other rich folks, including Buffet and Gates, intend to do the same. "With $1 million, my daughter would be getting way more than she needs and a helluva lot more than I started with," Cohen told me. In other words, charities wouldn't suffer; they would get part of what had been going to the government.

And if the superrich are serious about a "meritocracy," in which success depends on hard work and not inheritance, let them commit to leaving their heirs not the few mil we all know they'll get but true peanuts--as they advocate for the rest of us.