I dreaded taking tax law my third year of law school. Big numbers, fractions, bar graphs and percentages scared me. But witty and wonderful Professor Zolt made the subject interesting by discussing the policies underlying the tax code. He taught us to consider the why of tax. How do tax laws encourage or discourage financial behavior? How do they redistribute wealth? And how do they shape, protect and fund our democracy? Tax policy, in the abstract, fascinates me.
Yet, like many people, the reality of having to prepare tax returns and correspond with the IRS stresses me. Being trustee of my parents’ estate forced me to confront my fear of all things tax and to contend with complex IRS filings. With the help of an accountant and a lawyer (both of whom were kind, tolerant and taught me a lot) I muddled through the details of inventorying my parents’ assets and preparing the IRS Form 706 — The United States Estate Tax Return.
I invested a lot of time and money calculating the exact value of the estate and figuring out how much tax was due. My siblings and I ended up not owing very much because our parents’ estate wasn’t vast. After we filed, the IRS’s estate tax division conducted an audit — a routine procedure on estate tax returns because of the legal complexities and the heirs’ tendency to underreport estate values. We’d disclosed our estate’s full value in good faith and, after months of waiting, cleared the audit.
My long, torturous personal relationship with the estate tax heightened my awareness of its many inequities. I obsessively followed Congress’s recent maneuvering to enact new tax laws. My mind reeled when the not-so-great 2010 tax compromise became law in December. The new law decreases the estate tax rate to 35 percent and increases the size of exempt estates to $5 million. This means only the wealthiest of the wealthy have to pay any estate tax. It also means a projected $70 billion shortfall tacked on to the federal deficit. Definitely not fair!
As a kid, whenever I complained that something wasn’t fair, my dear departed dad lovingly reminded me that life isn’t fair. Of course he was right. But in addition to being unfair, the new estate tax law is mean-spirited and crazy making. The estate tax fluctuated so much over the past 10 years that the timing of a parent’s death became a morbid lottery. For example, if Mom died in 2001, we would’ve paid 55 percent tax on any amount over $675,000. But if Mom died in 2010, when the estate tax expired for a year, we wouldn’t have paid a cent. No one, not even the heirs of billionaires, had to pay a penny in estate tax last year. This is a travesty so unfair and unbalanced that Lady Justice’s scales should be gyrating wildly and crashing like cymbals.
Let’s, a la Professor Zolt, consider the policy behind the estate tax. By taxing estates valued over a certain amount, the law is intended to limit the generational transfer of big gobs of money — a worthy goal. We are a democracy, not an aristocracy. When large sums of money pass untaxed from generation to generation, wealth becomes concentrated in the hands of fewer people. We become a society of the privileged few lording over the less fortunate masses.
Raising the estate tax exclusion to $5 million per individual and $10 million per couple sets the bar awfully high. The new law allows large stashes of cash to transfer untaxed. The high exemption discourages the super wealthy from giving money to charity. Why give money away when you can keep it in the family untaxed? This type of greed runs contrary to the holy Jewish principle of tzedakah and subverts the Judeo-Christian philosophy of loving thy neighbor as thyself. Is your newly laid-off neighbor going to love your kids if they inherit $5 million free and clear while his unemployment runs out?
I paid our family’s estate taxes in good faith. After paying the tax, my siblings and I used part of our parents’ estate to create scholarships in their honor. We used the remainder of our inheritances to put down payments on new homes. Our inheritance didn’t enable us to become the idle rich. We didn’t quit our day jobs. And that’s as it should be. The new $5 million dollar estate tax exclusion may indeed create an American aristocracy, and that’s how it shouldn’t be.
I’m disappointed that Congress didn’t act in good faith when negotiating the new estate tax. How can taxpayers be expected to play fair when our legislators keep changing the rules of the game to favor the wealthiest amongst us?