"Bring Back the Estate Tax Now"
Source M. Raghu
Date 10/09/01/20:09
Bring Back the Estate Tax Now
Allowing it to lapse has cost us billions of dollars in revenue this year.

With a host of other issues behind it, Congress is finally turning its
attention to the expiring 2001 and 2003 tax cuts. But there is one tax
issue that should have long since been addressed: the federal estate
tax. That tax expired at the end of last year, and there have been no
estate taxes levied this year. If a new estate tax is not enacted as
soon as Congress returns from its August recess, this void will
continue until the end of the year.

We would recommend continuing 2009's regime, with a top rate of 45%
and a $3.5 million individual exemption. Small businesses and family
farms can be protected both through the exemption (which is $7 million
for a couple) and through special deferred payment rules.

We both believe that the estate tax should be a component of any
federal tax system. Our government is always going to collect and rely
on tax revenues to pay for the activities that our citizens want and
need government to perform. A key criterion in choosing taxes is to
have the least negative impact on economic activity. The estate tax,
in our opinion, meets that test.

An estate tax can provide revenue—with little, if any, adverse
supply-side economic impact—to fund deficit reduction, additional
public investment or added assistance to those affected by the
economic crisis. Used for public investment that has a rapid spend
out, or applied to assistance for economically displaced citizens, the
net effect will be to increase demand. That's because roughly 100% of
the funds would be spent, while part of any large inheritance is
highly likely to be used for savings or debt repayment. And either
deficit reduction or public investment will better position our
country for future economic success.

We also share the view that the estate tax is grounded in powerful
philosophical underpinnings. Our nation views itself as a meritocracy
and a land of opportunity and we have a proud legacy of upward
mobility. An estate tax helps us promote this legacy, by avoiding the
accumulation of inherited economic—and political—power that is
antithetical to this historical vision of our society and to the
vitality and dynamism that has contributed so much to our success.

Failure to restore a permanent and strong estate tax for this year has
already cost billions of dollars in federal revenue. But there is
still time for Congress to take action for the current year. By acting
immediately, Congress can, at a minimum, solve the revenue problem the
lapse has created for the remainder of the year. It could also
consider going further by making the change apply from the beginning
of this year.

Ordinarily in tax matters, the effective date would not precede the
date of enactment, or at least the date that a measure was introduced,
because Congress knows that taxpayers make their plans based on the
existing code. But in the case of the estate tax, presumably nobody's
demise was affected in timing by the structuring of our tax laws. And
importantly there has been notice—through the president's budget and
statements by public officials—that a tax would be enacted earlier
this year that would apply to the whole of this year.

The question of how to address the income and other tax cuts that
expire this year is already eliciting many conflicting views. But
action on the estate tax should not wait. Our country is losing
revenue that, with its stressed fiscal conditions, it can ill afford
to forego.

Mr. Rubin is co-chairman of the Council on Foreign Relations and
former secretary of the U.S. Treasury. Mr. Robertson is chairman of
Tiger Management LLC.

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