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The Deception Scott McClellan Isn’t Exposing

The White House’s most succesful disinformation campaign? That’s not Iraq. It’s the war on the estate tax.

By Sam Pizzigati

The Bush White House, a former Bush press secretary charged last week, deceived America into war in Iraq. That charge dominated the nation’s headlines all week long. Meanwhile, an exposé of another Bush administration deception, also just released, went almost totally unnoticed.

This second exposé appeared in, of all places, an obscure official government publication. The topic: the estate tax, the only federal levy on the fortunes of America’s most financially fortunate.

The Bush White House has been waging, against the estate tax, a campaign of disinformation every bit as devious as the walk-up to the war in Iraq. But the two disinformation campaigns — the one on Iraq, the other on estate taxation — do differ in one basic respect. Most Americans have caught on to the obfuscations on Iraq. On the estate tax, many still haven’t.

Millions of average Americans today believe they face a “death tax” that will snatch away that nest-egg they’ve labored to leave for their loved ones. They believe that because a handful of super-wealthy American families started bankrolling [1], about 20 years ago, a highly sophisticated offensive to demonize the federal tax that has been infuriating America’s ultra-rich ever since 1916.

George W. Bush signed on to this offensive early on. His new administration, in 2001, would make estate tax repeal a top priority — and score a smashing triumph. As part of the 2001 tax cut, President Bush signed into law a year-by-year drop in the estate tax rate that led to a full repeal in 2010.

But to get this legislation through Congress, the White House had to agree to a catch. The entire 2001 tax cut would expire after 2010, and the tax code, after that date, would revert back to the pre-George W. Bush status quo — unless, of course, Congress took action before then to make the cuts permanent.

The White House and the estate tax repeal gang have been fighting for that permanence ever since, railing at what they call the “death tax” at every opportunity, dubbing the estate tax public enemy number one of the family farm and the neighborhood small business.

Late last month, the IRS quietly “exposed” the disinformation behind this anti-estate tax effort. Actually, the IRS has been exposing this disinformation for some time now, in a series of dry, statistics-laden analyses of estate tax operations that have appeared in an IRS research journal, the Statistics of Income Bulletin.

The latest offering in this series [2] details estate tax filings in 2004. In that year, over 2.3 million Americans died. Of that total, only 42,239 — 1.8 percent — left behind an estate large enough to have to file an estate tax return.

But the estate tax law allows for various deductions and credits. Funeral expenses can be deducted, for instance, as can attorney fees, charitable contributions, and, most commonly, transfers to surviving spouses. “Decedents” can transfer unlimited amounts to their spouses.

In 2004, if you left behind over $1.5 million — that year’s level at which an estate tax return had to be filed — but your estate claimed deductions and credits that brought your taxable estate down below $1.5 million, your estate would have faced no estate tax whatsoever.

In 2004, over 54 percent of estates worth over $1.5 million fell in this no-tax category. In the end, only 0.8 percent of all the Americans who died in 2004 left behind an estate that actually paid a dime of estate tax. So much for the estate tax as a threat to the hard-earned nest-eggs of average Americans.

But an even closer look at the new IRS estate tax numbers reveals a reality that should have average Americans worrying, not about their own personal family savings, but about what estate tax repeal — or any steep reduction of estate tax rates — will mean for America’s future.

Estate tax statistics for any one year actually amount to a snapshot of American inequality — as that inequality existed a quarter-century earlier. Most rich people, after all, don’t die in their 50s or 60s, at the peak of their earning power. They die 20 to 25 years later, and the estates they leave behind at death largely reflect the fortune they accumulated back in their most robust earning years.

In other words, the richest people who died in 2004 built the core of their fortunes in the 1980s, years when wealth in the United States had only just begun to rapidly concentrate at the top. The rich who died in 2004, as a result, really don’t rate as particularly rich, at least not by contemporary standards.

One example: The new IRS estate tax data indicate that chief executives made up the “single most common occupation” of estate tax decedents in 2004. These CEOs left behind fortunes that averaged $7.9 million. That’s just a fraction of the fortunes that CEOs active today are accumulating. Last year, CEO annual incomes at America’s 500 biggest companies averaged $12.8 million [3].

Many CEOs today, in short, are routinely making more in a year than CEOs a generation ago made over their entire careers.

The new IRS estate tax stats for 2004 also show that only 801 decedents in 2004 left behind estates worth over $20 million. These 801 estates averaged $62.3 million, a hefty sum, to be sure, but a fortune that pales against the enormity of the fortunes that today’s economic superstars are amassing.

The 801 richest Americans who died in 2004 left behind, all combined, less than $50 billion. The latest Forbes 400 list of America’s richest has two individuals who each hold [4] a fortune over $50 billion.

So what does all this mean? Twenty or so years from now, today’s super-rich — the hedge and private equity fund managers, the investment bankers, the corporate CEOs — will be passing away en masse. They will leave behind fortunes that will dwarf the largest fortunes that appear in the IRS estate tax collection update for 2004.

Will these huge estates of the future flow tax-free to heirs — and set the stage for a new permanent American aristocracy of wealth? Or will a meaningful estate tax be cutting future concentrated wealth down to a more democratic size?

Congress, in the next year or two, will likely determine the answer.

Sam Pizzigati edits Too Much [5], the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies.