John Kline Adamantly Supports Repeal of the Estate Tax

As we continue to meander through John Kline's entries in the Congressional Record for his first year in Congress, we find that on June 17, 2003, freshman congressman Kline continued his well-established pattern of introducing fluffy pieces of non-binding legislation when he introduced a bill recognizing the University of Minnesota at Duluth's Women's Ice Hockey team for their National Championship victory over Harvard. It was their third consecutive national title; quite an accomplishment.

The next day, however, the House was debating more far-reaching legislation, the question of whether to repeal the federal estate tax permanently. In the prolonged debate in which opponents and proponents of repeal argued studies, facts and statistics, John Kline had this to say (and this was all Kline had to say on the topic):

Mr. Speaker, I thank the gentleman for yielding me this time, and I rise today in strong support of H.R. 8, a measure that frees men and women from being penalized for their hard work and their success. The Death Repeal Permanency Act of 2003 would eliminate the death tax, eliminate it, and that is the key, once and for all.

Mr. Speaker, Congress has already voted to get rid of the tax. We should never ever let it come back. The estate tax discourages the very values we prize most highly in our Nation. It is a tax on hard work and savings, on sacrifice, and on success.

In Minnesota, the family farm is an important part of our commerce, an important part of our industry. It is part of the fabric of Minnesota. The family farm epitomizes the values that we hold most dear. We should never ever let this tax creep back in and put those farms in jeopardy.

We cannot allow this unjust penalty to harm any of our family farmers, whether they are a small farm, like my wife's family farm, or a big farm. The estate tax is immoral. The death of an individual's father, mother, father-in-law or mother-in-law should not be a taxable event. Not now, not ever.

Let us support H.R. 8 and not the Pomeroy substitute.

Now this probably isn't going to come as much of a shock to you, dear reader, but I think John Kline is 100% wrong on this issue, and I'll explain why.

First, let's examine the points Kline makes:

• The estate tax is a tax on "hard work, sacrifice and success": This is just silly. The estate tax taxes an individual's net worth after they've died. Some of this net worth was accumulated via investments or gifts, not hard work. And for that portion of an estate which was earned through "hard work, sacrifice and success", the estate tax is a less onerous tax than the standard income tax (because it only applies to estates valued in excess of $1.5 million) or the payroll tax (which applies to the first $90,000 of income for everyone). While it's true that Kline and other Republicans have pushed even harder to reduce income taxes than they have to eliminate the estate tax (although even then, none are demanding a full repeal of income taxes --- yet), they are strangely mum about payroll tax rates.
  
  If we're really concerned with reducing or eliminating taxes on "hard work, sacrifice and success", let's whittle down the payroll tax first --- which affects everyone who works, including those least able to afford it --- and discuss the estate tax later, a tax which applies to fewer than 2% of people who die.


• "Congress has already voted to get rid of the tax": An interesting bit of hyperbole, but wrong. In 2001, Congress voted to gradually decrease the tax rates for the estate tax and raise the dollar amount of an estate immune from the tax, eventually phasing out the tax altogether in 2010. After that, though, the estate tax is reinstated at 2003 levels. So Kline could just as easily (and more accurately) have stated that "Congress has already voted to leave the estate tax exactly where it is" (remember, Kline made this speech in 2003). But I guess that wouldn't have the same rhetorical impact.


• "We should never ever let this tax creep back in and put those farms in jeopardy": Here Kline is engaging in a well-worn scare tactic of estate tax opponents, suggesting that the heirs to farms subject to the estate tax would have no choice but to sell out to --- well, someone --- in order to cover their tax liability. But this is only a scare tactic, and far from reality.
  
  The nonpartisan Congressional Budget Office released a study this past July which looked at the effect of the estate tax on farmers and small business owners for the 1999 and 2000 tax years (the most recent years for which comprehensive data were available). The CBO concluded that roughly 4,500 farms per year were subject to the estate tax for those two years. Of those, fewer than 8 per cent owed a tax bill greater than the amount of their liquid assets.
  
  Does 8 per cent still sound like a lot? Maybe, but consider this: Estates for which a farm or small business comprise 35% or more of the total estate value are eligible to spread their estate tax payment out over 14 years, paying nothing but interest for the first five years. So it is extremely unlikely that any family had to "sell the farm" in order to pay an estate tax bill. In fact, the American Farm Bureau Federation, a group which opposes the estate tax as strongly as John Kline does, has admitted that they cannot identify a single farm family forced to sell the farm due to the estate tax.
  
  And remember, the CBO report covers 1999 and 2000, when only $675,000 of an estate's value was exempt from the tax. The current threshold of $1.5 million (scheduled to rise to $3.5 million in 2009, before the tax is temporarily eliminated in 2010) should ensure that no farms will be put in jeopardy due to the estate tax any time soon.

At the end of his floor speech, Kline did make a fleeting reference to something called "the Pomeroy substitute" (H.Amdt. 171), which he opposed and ultimately voted against. The Pomeroy substitute would have effectively wiped out all previous legislation pertaining to the estate tax and replaced it with a permanent estate tax starting in 2004 with an exclusion amount of $3 million for individuals and $6 million for couples. Needless to say, it would have protected those Minnesota farmers for a good long while. This exclusion level would leave fewer than 1% of the population subject to the tax --- roughly 100 farms and 100 small businesses per year nationwide. Kline and the rest of the House Republicans defeated the Pomeroy substitute, and instead passed H.R. 8, because they will settle for nothing less than full estate tax repeal.

And this is where John Kline and I really part company.

There are a lot of arguments in favor of the estate tax. Some argue that the estate tax encourages charitable giving, since a lot of folks would rather give their money to the United Way than the IRS. Many rightly point out that repeal of the estate tax would be expensive, with some estimating it will drain nearly $1 trillion from the federal treasury in just the first decade after its repeal ($745 billion in lost revenue and $225 billion to service the higher federal debt). The Citizens for Tax Justice make the interesting argument that elimination of the estate tax would actually discourage entrepreneurship and innovation, because children of the obscenely wealthy would simply drift through life waiting for their big inheritance payout ("if giving a single mother $10,000 a year in welfare stifles her incentive to work, just think how much worse it must be for someone who gets a windfall of 100 or 1,000 times that much").

And of course, most if not all of the theoretical ills of the estate tax are made up or ill-supported. When I Googled "estate tax", only one site out of the first hundred put forth a sustained argument for repealing the tax. That was The Heritage Institute, and all of their arguments hinge an the assertion that the estate tax discourages investment, which they make no effort to document and which is at best subject to debate. Like Kline, they also argue against the estate tax on moral grounds. "The death tax appears to many people as a clear contradiction to a central promise of American life: that if you work hard, save, and live prudently, you will be assured the enjoyment of your economically virtuous life." But the estate tax has no effect whatsoever on one's ability to enjoy one's "economically virtuous life", since the tax doesn't kick in until after you're dead.

For me, the real reason to keep the estate tax --- albeit perhaps in some amended form, like the Pomeroy substitute --- is basic fairness. Eliminating this tax will add roughly $100 billion per year to the federal debt, already at record levels, and the supposed fiscal conservatives championing estate tax repeal aren't saying a word about how they plan to make up the difference.

Here are some of the likely ways to make up the difference:

• Don't make up the difference. Continue to let the debt grow, and increase the federal government's dependence on Japan and China.
• Cut federal spending by $100 billion a year.
• Make up the revenue by raising taxes elsewhere, like income taxes or capital gains taxes.

I don't like any of these options. Whatever strength the U.S. economy might have is endangered by our massive I.O.U.s to foreign nations, and it's reckless and frankly hypocritical for the Republican party, which claims to be serious about American strength and security, to put us further into hock. Similarly, I don't want further cuts in federal spending, especially if those cuts are going to affect the most vulnerable members of our society.

And since a responsible Congress would acknowledge that taxation is required to generate revenue, I certainly prefer those taxes to come out of the estates of the wealthiest 0.2% of the population, rather than coming out of the incomes of the remaining 99.8%. Yes, in a perfect world, the obscenely rich would be able to leave 100% of their wealth to their heirs, but a perfect world also wouldn't have income or payroll or sales taxes. Since I'm not an anarchist (and I doubt Kline and the rest of the Republicans are either), the estate tax seems like a reasonable way to keep the government running with the minimum amount of pain for everyone.