Future of estate tax depends on justice

Efforts to repeal the federal estate tax are on hold right now, but when the Senate resumes deliberations after its August break this contentious issue is sure to reappear. Maine’s two moderate Republicans are already targets of intense lobbying efforts.

Familiar arguments about self-reliance, creating wealth rather than taxing it, and the virtues of small business will be trotted out in an effort to promote estate tax repeal. Such arguments are misleading. Maine’s senators can do more to broaden economic opportunity and foster the interests of small businesses by supporting reform rather than repeal of the estate tax.

Conservatives argue that Americans don’t object to vast disparities in wealth. Poor and working-class citizens hope to become wealthy themselves. They oppose estate taxation. Yet polling data is ambiguous. When poll questions assess levels of public support for estate reforms that protect small businesses, public support for retention of the tax is substantial.

Whatever the poll data shows, however, the larger question turns around equality of opportunity. Disparities in wealth and income have grown over the last quarter century.

As I will argue in a subsequent column, increases in CEO salaries over the last decade do not generally reflect improved executive performance. In addition, much of the corporate wealth generated in the last quarter century is an artifact of government giveaways and special favoritism.

When disparities in income and wealth become too large, equality

of opportunity is also severely challenged. Americans portray themselves as a classless society.

Nonetheless, as Gary Younge, Washington correspondent for the London-based Guardian, points out, class may not be as clearly defined by accents and dress codes as in Britain, but class mobility in the United States has been steadily shrinking. He cites a Purdue University study, essentially confirmed by other scholars, comparing incomes and occupations of parents and their children from the early ’70s to the late ’90s.

Mobility has significantly decreased and a large segment of the population has become more vulnerable and is essentially mired in poverty. Other observers have concluded that economic mobility in the United States now approximates the rather static European norms. At least in class terms, the post Reagan America bears a closer resemblance to the “Old Europe” than many would care to admit.

If economic mobility has slowed, rates of economic growth are also slower than the peak periods in our history. By all-important measures, economic growth in the quarter century after World War II surpassed the economic growth of the last quarter century. Many of the most successful and affluent Americans today also acknowledge that their success in business depended not merely on their talent and hard work but on the contributions that teachers made to their education and that publicly supported research made to their businesses. More broadly, our very notions of self-reliance and individual initiative represent a kind of cultural capital that has been sustained in part by public subsidy of the arts and of higher education.

Sustaining economic opportunity requires a physical, cultural, and educational infrastructure that is generous and available to all. The United States today is severely deficient. Civil engineers are properly concerned about a system of highways, bridges, water and sewage systems that is increasingly strained. Public school buildings need more than $100 billion in repair and modernization. Poorer urban and rural areas suffer disproportionately from these deficiencies.

State governments are already so fiscally constrained that they cannot meet these needs. Nor can any level of government fund necessary reconstruction through regressive sales and property taxes. Taxes that fall disproportionately on poor and working class Americans inevitably evoke backlash and lead to further underfunding of the public sector.

If we are to restore economic opportunity in America, wealth must be fairly taxed. A more progressive income tax should be part of the package, but a reformed inheritance tax is also crucial. Full repeal of the estate tax would cost the government nearly $1 trillion in the next 20 years.

Reform is a far better option. One reform proposal would grant an exemption of 3.5 million (7 million for a couple) and establish a top marginal estate tax rate at 45 percent. A recent study shows only about 0.2 percent of Maine estates would have been hit by this tax. A family with a $15 million estate could still leave more than $11 million to its children, hardly confiscatory.

Reform proposals also take full account of the needs of small business. Many complaints about the loss of family farms to the estate tax have been shown to be exaggerated or even utterly fallacious. Small businesses in Maine need a better and

more energy-efficient transportation structure, educated workers and a world-class research university.

Without an equitable tax structure, they will have none of these.

John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail messages to jbuell@acadia.net