The following editorial appeared in the Chicago Tribune on March 2:
President Bush has proposed a phase-out of the estate tax over 10 years, a controversial measure that has been attacked by Democrats as nothing more than a revenue giveaway that would benefit only the rich.
That's false. The estate tax is neither efficient nor fair, and it deserves to be eliminated. Rather than raise a revenue windfall for the government, it has primarily served to fuel the growth of an industry of legal estate-tax avoidance. At its most destructive, it forces heirs at a time of grieving to sell off long-held family businesses or property simply to settle the tax bill.
There's a critical distinction to be made here, one that belongs in the tax debate. Estates should not be taxed upon death, but they should be fully taxed upon the sale of assets in the estate. That is, estates should be subject to capital gains taxes based on the original value of their assets, and the triggering event for taxation should be the sale of those assets.
That would remove the most distasteful feature of the estate tax - the fact that death is the trigger, and oftentimes robs heirs of the opportunity to build upon a business created and nurtured in the family.
Changing the tax trigger to the point where heirs sell an asset would protect that opportunity to build, but assure that taxes eventually are collected. Sell the family business? Pay the taxes. Such a change also would capture all of the capital gains generated by estates.
Under present law, more than half of all capital gains are never taxed because heirs are allowed to treat the market value at the time of the estate owner's death as their starting point -rather than the original cost of the asset.
This would broaden the tax base and simplify the tax code by reducing the current three sets of tax rates - one for income, one for capital gains, one for estates - to two.
Estate tax rates now range up to 55 percent. They are owed on estates valued at more than $675,000. That amount is due to rise gradually to $1 million by the year 2006. That may sound like a great amount, but when everything is counted in - business, house, car, stocks, bonds, other investments, proceeds from life insurance, cash and all belongings - it can stick a hefty tax tab on people who live modest lifestyles.
Nevertheless, only about 2 percent of estates in 1999 paid the tax, in part because it is escaped by those who are wealthy and knowledgeable enough to flock to high-priced attorneys armed with tax-avoidance techniques.
The estate tax in 1999 raised $24.8 billion for the Treasury. The debate over repeal of the tax assumes all of that would be lost in future years. But much of that could eventually be recouped by capturing capital gains at the point of sale.
That would be fair. It ought to be law.