Property Rights Foundation of America®

Speech from the Eighth Annual New York Conference
on Private Property Rights
(2004)

 

REPEALING THE DEATH TAX

Preserving Small Businesses

By Dick Patten

Thank you! Okay, we are going to do "Kill the Death Tax"-Readers Digest version. As Carol mentioned, I am the executive director of the American Family Business Institute. We are a group of family business owners across America who exist for one purpose and one purpose only, and that simply is permanent repeal of the federal estate tax, to kill the "death tax."

The battle for death tax repeal truly is in a number of different ways a battle for the soul of property rights. The bottom line is, folks, we can protect our properties, we can save and invest and acquire properties, we can gather that which we have worked hard for all of our lives, and if we are not free to give what we have gathered and saved and owned to whomever we deem fit, then we do not have a property right. At that point then when our life comes to an end, the government takes over our property and that is not property rights.

One of the things that I find fascinating about this particular issue is that, while the death tax does not produce that much revenue for the federal government, we are talking 1.2 percent of the federal budget, not much more than even a rounding error, it is an issue where two completely opposing views, world views, and views of property rights clash over the top of it and as a result those of us who work to protect property rights are clashing with the people who are deeply committed to property redistribution.

Back in the 1600's John Locke and a lot of very prominent Englishmen extensively debated the issue of property rights and throughout that century developed the fundamental concept of property rights, so that by the time we got into the 1700's in English society property rights were viewed as an absolutely uncompromising right of all Englishmen. As a result, by the way, that nation became the most prosperous of all the nations in the world. That thinking and those debates became the basis of what we now know as the American constitutional system and the American free enterprise system. Those rights were held to be absolutely inalienable until we began to get into the 1800's and became absolutely under attack when Karl Marx and Friedrich Engels published the Communist Manifesto, which, by the way, I happen to have a copy of. The Communist Manifesto has a ten-point plan for the implementation of their view in the world. Point number one is the abolition of property and land and application of all rents of land to public purposes. Point number three is the abolition of all right of inheritance. So, as I said, the rights to inheritance are absolutely intertwined with property rights. On May 1, 1918, in Russia, they took this plan and implemented it very, very literally in Communist Russia, and number one what they did is they abolished all private property rights, and at the same time they abolished all rights to inheritance.

The reason why I bring this to light is because even today as we are fighting this battle, what we are finding is there is a very solid core of people who are opposing getting rid of the death tax, and they are fighting it very, very hard. The reason is that for them the redistribution of other people's property is their core world value. It is more important to them as a principle than it is, say, just the 1.2 percent of the federal budget. The death tax is actually for them a small scale version of what the entire world ought to be from their point of view, and as a result, we have some very, very dedicated opponents. And while this battle is very winnable and I have some very cheerful information to share with you, we are going to need your help to push this boulder up over the top of the hill.

One of the things that the introduction didn't mention to you is that I killed my first death tax in 1981. When I was 27 years old, I went down to Olympia, Washington, and filed an initiative to the voters for the State of Washington to repeal Washington's inheritance and gift taxes. We hired a staff, we formed a committee, we gathered 200,000 signatures, we qualified it for the ballot, we ran the campaign for the duration of the year, and when all was said and done, even the liberal voters in the state of Washington voted 72 percent to kill the death tax. During that time we learned a few things. At that time, the State of Washington Department of Revenue had its own stand-alone bureaucracy for administering the Washington State inheritance tax. It was run by a man named Clarence Borley. As we did our research, we found that Clarence Borley had done his thesis for his Masters in Public Administration on "A Social Philosophy of Inheritance and Gift Taxes." We are not just dealing with people who are committed to the principles of Karl Marx. We re dealing with bureaucrats who have completely lost sight of any concept of property rights. He says inheritance is not a natural right. It is merely a privilege granted by a benevolent government. These folks are the enemy.

Let me give you a quick history of the death tax, and we are going to do a quick thumbnail sketch. We first saw it in 1797. So the death tax is not a new or modern idea. It was a stamp tax on estates. Its purpose was to fund the building of the United States Navy for the very first time, because of a perceived naval threat from France. When that didn't occur, in 1802, five years later, it was repealed. In 1862 they re-instituted a very modest death tax to fund the Civil War. The Civil War was over in 1870, and they repealed it eight years later. In 1898 we had the Spanish American War and again it was a very modest, very mild death tax but it was simply to fund the war. They repealed it in 1902, four years later. And in 1916, of course, we had World War I and for the purpose of funding the Great War we instituted a death tax. This is the death tax that went from one percent to ten percent. At that time, by the way, only one percent of people had estates of $2 million. That is $2 million 1916 dollars, but the problem is this time the death tax never went away. Its purpose for being went away because we won World War I, and so they had to find a new purpose for its being, and this new purpose became the redistribution of wealth. Let me tell you where from 1916 forward.

In 1916 the rates went from 1 percent to 10 percent; 1922 they raised it to 40 percent; 1932 to 45 percent; 1935 under Franklin Roosevelt up to 70 percent; and in 1941 77 percent top rate. Since that time it has kind of bumped around. For a long time it was 55 percent. It is currently phasing down. It is not phasing out, but, for example, if mom and dad died this year, the top rate is at 48 percent.

Let me just tell you quickly where we are on the death tax. This probably isn't terribly new information but in the year 2000 the death tax was 55 percent, and you can see it has slowly come down, down, down from 50 percent, 49, 48. By 2009 it is going to be 45 percent; 2010 there will be no death tax; 2011 it will be at 55 percent, which is probably why the New York Times initiated this the "Throw Mamma From the Train Bill" and if mamma is going to die, make sure that it happens in 2010, which is a little bit graphic and a little bit gross, but could be a concern.

Once again, the death tax is not that big of a slice of the federal budget. It is $24 billion. It is 1.2 percent. By the way, it is also a very expensive tax to enforce. About sixty percent of those funds are spent on enforcement. It is a very, very expensive tax. For example, at any given time there are approximately 11,000 lawsuits of families and estates suing the IRS, predictably, over the issue of valuation. The death tax is administered by the IRS out of their Cincinnati offices by a group of all lawyers. It is not like the income tax where they sample so many and those are the ones they audit. Every single estate tax filing is examined by their attorneys, and they have an incentive program within the department to maximize the IRS's estimation of values of things that are not entirely nailed down like property and businesses. For example, these are the folks that will write you back a letter after grandma and grandpa died saying, your assets, the family business, whatever, we don't think it is worth $3 million. We think it is worth $13 million, so here is your invoice for $6 million. But this is the experience that American families are undertaking under the death tax.

Let me give you a quick synopsis of where we have taken this fight. In 1998 a repeal of the death tax was passed by both the House and the Senate and was vetoed by President Bill Clinton. The very next year, 1999, the same thing happened. It passed by the House and by the Senate and vetoed by President Clinton. In 2000 repeal was passed by the House, but it was passed in the Senate by 59 votes and was signed by President Bush. Now pay attention here.

There is a little known rule within the Senate called the Byrd Amendment which says if you decrease a tax and you do it by less than 60 votes then in ten years that tax comes back the way it was before. That's why the death tax is coming back. You will notice that the repeal passed by 59 votes. There are two Senators who reversed their votes when it came out of committee. And we might as well name names. One of them is John McCain, a Republican, who because they reversed their votes, that is the reason why the death tax comes back in 2011. That's the reason why we have to be fighting this fight. 2002 repeal was passed by the House and it was passed by 56 votes in the Senate. We thought that we had the 60 votes we needed. It was in the cloak room of the Democrat caucus where Tom Daschle and Senator Harry Reid from Nevada took three critical votes and trimmed them against us. The fourth one was one of our guys who was sick that particular day. We, of course, took that very personally. Last year it was passed by the House with a 101 vote, a very bipartisan majority; the Senate didn't even pick it up.

Let me give you a quick current political status of where we are. The House has passed a bill to repeal the death tax permanently seven times in seven years. The House is absolutely with us and is with us in a very bipartisan way. I won't bore you with the details. If you would like to find out, I can share it with you later. In the Senate we are at 56 or 57 votes and I'll give you a breakout real quick. In the White House the prior occupant of the White House, as you saw, vetoed death tax repeal. The current occupant of the White House, George W. Bush, will not only sign, he will excitedly embrace any opportunity to permanently kill the death tax. Two weeks ago, Senator John Kerry declared himself. He said he would like to roll the death tax back to the previous higher rates. In other words, 48 percent isn't quite enough for him. So, for those of us who want to kill the death tax, I think we can have a view of the future if he is elected the next President. This is how the Senate stacks up real quick. We have eight senators in play.

Let me simply tell you that in nine states in 31 cities in those states we have teams of family business owners, these are family businesses that do anywhere from $20 million to a billion dollars, formed in teams leaning on these senators. In addition to that, and these are the teams, nationwide we have 480 business owners who provide 99,909 jobs, that kind of rolls off the tongue. There is a group that conducts $42.2 billion worth of business and these, ladies and gentlemen, are our grassroots. These business people have committed themselves to work in teams, leaning on their senators. Their senators happen to be senators that are in the balance. In addition to that, we are involved in ten very key senate races. All of these seem to be gettable, some more than others. The one we are most heavily vested in is in John Thune's race. He is running probably successfully to defeat Tom Daschle. We, for example, waded in and did two a half weeks of TV, two and a half weeks of radio, about four tons of direct mail. Two weeks ago we called every household in the state. This week we mailed them all. Next week we are going to call them again. But these are the types of things that we have done working together.

I want to mention to you that the Forest Landowners Association has been a very, very valuable ally in this fight. The reason I want to throw this out, and we have other very valuable allies, some of you may be representing groups of property owners. If you would be interested in linking with us so that we can give you talking points, strategic cues, and keep you informed as we move forward on the fight to kill the death tax, then please contact me. We'd love to plug you in. The goal, and I'll simply leave you with this quick word of wisdom: Kill the death tax. Don't wound it. Thank you very much.

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