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Keep estate tax, says Gates Sr.

By CHRISTIAN BOURGE, UPI Think Tanks Correspondent   |   Jan. 14, 2003 at 7:13 PM   |   Comments

WASHINGTON, Jan. 14 (UPI) -- Wealthy individuals have a responsibility to repay the U.S. government for the benefits from American society that enabled them to gain their riches, William Gates Sr. -- father of Microsoft Chairman Bill Gates -- said Tuesday at a Washington think tank forum on federal estate taxes.

"I think the people who have the good fortune, the skill, the luck to become wealthy in this country simply have a debt to the source of their opportunity," said Gates at the event, which was sponsored by the Urban-Brookings Tax Policy Institute, a joint venture of the Urban Institute and the Brookings Institution. "I just don't see any problem with the estate tax, which is recovered from folks at the time of their death."

He added that not only are such taxes appropriate, they are likely the fairest and most progressive elements of the federal tax system, because they fall most heavily on the wealthiest citizens.

Gates is co-chair of the Bill and Melinda Gates Foundation (a Seattle non-profit with an endowment of approximately $24 billion), and a trustee of the national board of the United Way.

He is also the co-author, with Chuck Collins, of a new book, "Wealth and Our Commonwealth: Why America Should Tax Accumulated Fortune," that makes the case for the importance of the estate tax.

In 2001, Gates began working with Responsible Wealth, a Boston-based group that advocates the reform, but not the elimination, of the federal estate tax.

For President George W. Bush and many fiscal conservatives, the permanent repeal of the federal estate tax, dubbed the "death tax" by its opponents, remains a top economic policy issue.

In 2001, Congress passed a 10-year $1.35 trillion tax cut that includes a general phase-out of the tax through 2009, but allows the tax to return to 2001 levels in 2011.

Under current law, the threshold for the exemption of estate from taxation gradually rises from the 2001 level of $675,000 to $3.5 million per person ($7 million per couple) in 2009, and would be eliminated for the year 2010. Currently, the exemption stands at $1 million but will rise to $1.5 million in 2004.

At the forum, Gates said he grew up with the notion that American society accepted the progressive taxation of individuals, but that a change in that perception is behind much of the current opposition to estates taxes.

He said this change in sentiment is driven partially by a belief in the "egregious" myth that achievement and wealth is solely a function of personal intelligence and energy, and is therefore the exclusive possession of those that earned it.

He noted, however, that the federal government financially supports important activities that drive innovation, including technological research and public education. These factors enable individuals to develop wealth while their businesses thrive, he said.

Gates cited the Internet and many biotechnology innovations as examples of federally subsidized research that has driven business development in the United States. In addition, he said that a well-educated workforce allows companies to hire the staff they need to drive their growth.

He added that such important factors are do not exist in many countries around the world.

"The difference is being an American," he said. "This is an enormously stable place, a place where markets work because there is legal structure to support them. It is a place where you have the opportunity to think and to create."

Bruce Bartlett, a senior fellow at the National Center for Policy Analysis and a former deputy assistant treasury secretary for economic policy in the administration of George H.W. Bush, said that much of the support for repealing estate taxes comes from those who are not wealthy.

"It is startling that the dominant forces that support estate tax repeal are people with moderate wealth," said Bartlett, pointing to polls that show public support for repealing the tax runs as high as 70 percent.

"The people who do not want to repeal the estate tax have to figure out why it is that people who are not paying very much (estate) tax are so supportive of a repeal," he said at the forum.

Gates said that one factor influencing the strong public support is a false concept promoted by opponents of the repeal, that the family farmer and the "mythical" small business owner are the ones hurt by such taxes when they attempt to pass the family business on to their children. He said that copious disinformation about federal estate taxes, along with the success of proponents of repeal at capturing the debate early on, have driven public support for a permanent phase-out of the tax.

He added that one key to understanding the real impact of estate taxes on taxpayers is realizing that the tax affects only a "very, very small number of Americans."

He noted that only around 2 percent of the wealthiest Americans pay such taxes under the 2001 threshold of $675,000, and added that this number would be reduced to 0.3 percent by the time the threshold reaches $3.5 million in 2009.

But Bartlett said that current bad policies allow the ultra wealthy -- who can afford estate planning -- to use loopholes that allow them to cut their tax burden. The current increases in the threshold address this to a certain extent, he said.

According to Gates, the question of where the threshold should be set is central to the current debate over whether to make the repeal permanent.

"My question is: 'What is it worth to be an American?'" said Gates.

© 2003 United Press International, Inc. All Rights Reserved. Any reproduction, republication, redistribution and/or modification of any UPI content is expressly prohibited without UPI's prior written consent.
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