This post was originally published on Forbes Sep 15, 2015
As the Jeb Bush tax plan, which calls for the elimination of the estate tax was announced, I did not see anyone remark last week that September 8 was the 100th anniversary of the estate tax . For that I needed Paul Caron's recent article titled The One Hundredth Anniversary of The Federal Estate Tax: It's Time to Renew Our Vows (requires a download). Paul Caron is a law professor at Pepperdine University. He is also with his TaxProfBlog more or less the dean of the tax blogosphere.
He Thinks We Should Keep The Estate Tax
In his article Professor Caron likens the country's relationship to the estate tax to a marriage. A somewhat rocky marriage. Remember that trial separation back in 2010. Professor Caron makes a case for retaining the estate tax, lowering the exemption and closing some of the loopholes. He notes that the estate tax is now in something of a tattered state raising a historically low percentage of federal revenue 0.6% and reaching a historically low number of decedents 0.2%. And Professor Caron believes that the federal government needs to be raising more not less revenue.
The evisceration of the estate tax has thus occurred at a time of acute need for additional federal revenues. Indeed, it is especially ironic that a tax born out of fiscal demands during times of war has withered while the nation confronts radical Islamic terrorism and other threats around the world. As one commentator has observed, “[t]he total lesson of the life of the estate tax is this: a tax must have a revenue raising rationale if it is going to endure the changing moods of national social policies.” In its current state, the estate tax is projected to raise less than $250 billion over the 2016-2025 period.26 Of course, that is not an insignificant sum. But restoring the estate tax’s historic role in the federal tax system would increase that number to $500 billion to $1 trillion. Such a restoration is necessary not only to help reverse the erosion in our revenue base but also to help reverse the lost progressivity in the tax system and the increased concentrations of wealth that have occurred over the past several decades
The reforms he advocates were discussed in some detail in an article co-authored with James Repetti - Revitalizing the Estate Tax: 5 Easy Pieces. They called for dropping the exemption amount to $3.5 million and raising the rate to 45%. They also called for limiting valuation discounts in family businesses, putting a life-time cap on transfers to grantor retained annuity trusts and only allowing GST (generation-skipping tax) exemptions to amounts actually transferred within 50 years. I'd like to explain that GST 50 year thing to you, but I have this allergic reaction to GST planning.
Some of what they are looking for is contained in the Responsible Estate Tax Act that was introduced by Bernie Sanders. Wow. Bernie Sanders was at Liberty University this week, maybe he would also get a welcome at Pepperdine.
But I Thought Paul Caron Was A Conservative!
There is that rumor. The origin, besides the somewhat conservative reputation of Pepperdine, of the notion that he is a conservative comes from Professor Caron's coverage of the IRS scandal now on Day 859 by TaxProf count. Neil Buchanan in an article titled A Conservative Law Professor Points the Way Out of the IRS Scandal-That-Never-Was wrote
Professor Caron is the only person of any repute who has attempted to make the actual case for “scandal.” Writing his op-ed in a prosecutorial tone, he lays out facts and a timeline that make what he clearly believes is the strongest possible case for the conservative view about the IRS’s actions adding up to a full-on scandal. He also, however, deliberately uses language that unmistakably says to conservatives, “I’m one of you,” such as his broad claim that the mainstream media is not “curious” enough about the supposed scandal. People who believe in a liberal media conspiracy will sit up and listen.
Ironically Professor Caron's suggestion to finally get to the bottom of the scandal is for the House of Representative to give Lois Lerner immunity, a move that would not be popular with many conservatives at all.
Of course conservatives might be even more upset with Professor's Caron and Joseph Bankman's Califonia Dreamin'*: Tax Scholarship in a Time of Fiscal Crisis** in which they suggest that California's Proposition 30, which raised marginal income tax rates on high earners, may have been a good idea that worked pretty well and might be emulated at the federal level.
But the conventional wisdom in California two years ago was that raising taxes on the wealthy would harm the economy and doom any politician who dared touch this third rail. Instead, the public embraced this approach at the ballot box and, after enjoying the fruits of an economic turnaround, appears poised to reward the Governor with a landslide re-election.
I had a bit of an email exchange with Professor Caron asking him to clarify where he is on the ideological spectrum, but he preferred not to say. He indicates that he tries very hard to make the TaxProf Blog an impartial source for tax news and information. I have to say that I think he does a pretty good job, and that is not just because he highlights my stuff from time to time (Of course, it's not like that hurts either. Just saying.)
I actually have to thank Professor Caron from alerting me to SSRN as a valuable source for thinking on tax issues that you won't often find elsewhere. Maybe if Neil Buchanan had taken a closer peek he might have hesitated to put the conservative mantle of someone who co-authored an article titled Occupy the Tax Code: Using the Estate Tax to Reduce Inequality and Spur Economic Growth
For many decades, federal tax policy has played an important role in reducing inequality, although the impact of federal taxes on inequality has waxed and waned depending on the focus of elected officials. We argue that the estate tax is a particularly apt vehicle to reduce inequality because inheritances are a major source of wealth among the rich, and studies suggest that inherited wealth has a more deleterious impact on economic growth than inequality caused by self-made wealth. Although there are loopholes in the estate tax, it is still effective in moderating the amount of wealth that is passed within a family from generation to generation.