Estate Planning
Irwin M. Stelzer's latest pro-inheritance tax piece ("Death and Taxes," May 9) mercifully did not call for a 100 percent rate. So, we are making progress. But there are a number of problems with Stelzer's argument.
First: The inheritance tax is a death duty and not a tax on the beneficiaries. It is the size of the estate--not the size of the bequest and not the income of the beneficiary that is taxed--that determines the tax rate. The $50,000 bequeathed to the butler and the $50 million bequeathed to the ne'er-do-well son are not taxed any differently. The $105 million estate needed to make those bequests is taxed. Nor is the timing of the tax determined by the beneficiaries' actions. It hinges solely on the death of the decedent.
Second: The death tax is not an income tax, it is a wealth tax. It is not related to the income of the decedent or of the beneficiaries. If it were, it would be utterly preposterous. Given a 6 percent return on capital, the equivalent "income tax" rate equivalent to a 50 percent death tax is about 800 percent.
Third: As Stelzer notes, many estates haven't been previously taxed. But Stelzer then uses this fact to falsely conclude that inheritance taxes do not represent "double taxation." Using Stelzer's logic, the same could be said of corporate income and dividend taxes, since a good portion of dividends are not received by taxable entities.
The fact is, much of an estate's wealth is subject to double taxation (or triple taxation, if you view capital income taxes as doubly taxing earnings). In the Slemrod-Gale analysis, cited by Stelzer, much of the supposedly untaxed wealth in estates is untaxed because it represents inflation-related gains in asset values.
Fourth: If Stelzer believes in "equality of opportunity" as much as he claims, then surely he would join with the left wing of the British Labour party in seeking to abolish nonstate schools. They do not qualify under Stelzer's genetic-bequests exemption (which itself seems a bit odd). Similarly, private medicine should be abolished in Britain, since the National Health Service provides "equality of opportunity" for medical care.
Fifth: The inheritance tax is a tax on entrepreneurship. As such, it severely impacts the cash flow of small businesses. Most small businesses and entrepreneurs find that they must buy insurance to cover estate-planning issues. The worst aspect of the estate tax for small businesses is its random nature. A business is deprived of management and capital at the same time--and the timing is wholly unpredictable.
Sixth: Every study of the topic that I am aware of shows that the current 55 percent inheritance tax rate is way over the revenue-maximizing rate. A 55 percent wealth confiscation rate really concentrates the mind on finding lawyers and others who offer to minimize the bite. In that regard, we probably are helping to create human capital with the death tax. Too bad it is a form of capital with low--or even negative--social returns.
Lawrence B. Lindsey
Washington, DC
Rally Round the Flag
Regarding Edwin M. Yoder Jr.'s "Run It Down the Flagpole" (May 2): When I was a student there in the late 1940s, the University of Virginia used the Confederate battle flag as its school flag whenever we played northern colleges. For many years afterward I flew the Confederate battle flag alongside the American flag on Memorial Day, in honor of my great-grandfather, who was wounded slightly at Gettysburg and severely at Chickamauga.
Because the battle flag has been misused and mischaracterized, I now fly the Stars and Bars--sometimes called the Daughters (of the Confederacy's) flag--to avoid any misunderstanding. But my affection for the battle flag, and for the men who fought under it, glows warm and undiminished.
E. Earle Ellis
Fort Worth, TX