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Commentary and opinion on current civic, political, and religious events and issues.

Past Issue
5 March 2001

Northern City Journal
(ISSN 1528-9575)
Vol. 2, No. 10

Minneapolis, Minnesota

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Estate Taxes Solidify Elite's Economic Power

Contrary to popular belief, estate taxes actually prevent the middle class from becoming wealthy enough to challenge the economic power of the super-rich.

by Jerome F. Winzig

It is politically correct to believe that the United States' estate taxes keep economic power from being concentrated in the hands of a few. According to a recent letter to the editor in the Minneapolis Star Tribune, "The elimination of the tax would solidify economic and political power in the hands of American elites that already own the country's assets. The gap in wealth and income, already wide, will only become wider if Congress drops all these taxes.

The only problem with this viewpoint is that it is wrong. Estate taxes actually prevent people from joining the ranks of the rich. They serve the interests of the super-rich by making it very difficult for anyone else to accumulate enough wealth to threaten their lock on economic power. It is probably no coincidence that William H. Gates, Sr., father of the founder of Microsoft, investment tycoon Warren Buffett, and other very wealthy Americans oppose repeal of the estate tax.

In a recent article in the Wall Street Journal, Anne K. Hilker, a partner at the New York law firm Rosenman & Colin, pointed out that the estate tax can be harder on smaller estates. She explains that the most affluent Americans can easily afford to take many steps to reduce the size of their taxable estates. People with much smaller estates are often afraid to part with sizable amounts of money for fear they may need it for medical bills and other expenses.

A look at Treasury Department statistics reveals a little-known fact: Most of the nation's estate taxes are paid by smaller estates, thereby serving the hidden purpose of keeping the middle class from becoming wealthy. Almost two-thirds of the $20.3 billion in federal estate taxes is paid by 46,421 estates of $10 million or less, and 49 percent is paid by 44,585 estates of $5 million or less.

The lowest estate tax bracket consists of estates of $600,000 to $1 million. That's about what self-employed persons needs in their IRA or Keogh accounts to provide themselves with a decent retirement income. But if they die before using up their estates, their average tax is $45,810.

The next bracket consists of estates of $1 million to $2.5 million. These are often estates of small business owners. Upon their deaths, the average tax is $244,231. The next bracket, estates of $2.5 million to $5 million, are often somewhat larger family businesses, but their average tax is $903,950. How many small businesses have that much cash lying around? If they don't, the heirs often have to sell the business to pay the estate taxes.

What would be the effect on the American economy if estate taxes were dropped on the 46,421 estates of $10 million or less, allowing those estates to pass on to another generation who might then grow those businesses larger. That's 46,421 potential challenges to much bigger corporations! For that matter, why not drop the estate taxes on the remaining 1,062 estates $10 million and over. They represent a thousand potential challenges to multi-national corporations.

If we let these challenges continue to grow, they have the potential to divide the economic pie among far more and to create much greater diversity and sharing of wealth than any socialist scheme.

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