Estate Tax Folly
February 3, 2001
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The New York Times today offers an editorial on the death tax that runs under the headline "Estate Tax Folly." The editorial itself is an example of folly, in so many ways that it's hard to know where to start.
To begin with, there's the Times' warning that without the death tax, "bequests to universities and other charitable institutions could dry up." Well, a charitable institution is either a charity or the beneficiary of a quirk in the tax laws, but not both. In other words, if the donors to these charities are giving the money not for the purpose of helping the charity but for the purpose of avoiding taxes, maybe the best policy step would be lower the tax rate and let the charities compete on level ground with other expenditures. In fact, hardly anyone is talking about ending income-tax deductions for charities, and President Bush is actually proposing to expand that deduction to taxpayers who take the standard deduction and do not itemize. And it's not as though the universities are exactly hurting for cash -- many of them are already sitting on multi-billion-dollar endowments. If there's any charity around that can't exist without the death tax working in its favor, the charity probably deserves to wither. Some of the charities formed partly because of estate tax considerations, such as the Ford Foundation, have turned into left-wing front groups that have done so much harm over the years that the world would be better off without them, anyway. (This is not meant to cast any aspersions on the current president of the Ford Foundation, Susan Berresford, a likeable woman whom the editor of Smartertimes.com has found to be a gracious luncheon host.)
Then there is the Times' assertion, "We continue to believe that the surpluses are not so dependable that they should be dedicated to a tax cut." Left unexplained is how the dependability of the surplus makes tax cuts less desirable than the new spending proposed by the Times.
Then there is the Times' suggestion, "If there is to be an adjustment in the estate tax, it would be better to provide some relief to owners of small farms and family businesses." What is the policy argument for giving death tax relief to a family business owner, but not to a man who used to own a family business but sold it the year before he died and whose holdings are now liquid? There is none. The Times proposal would chain the second and subsequent generations of family businessmen to businesses that might be more efficiently operated by large corporations. And it would lock capital in place that, without the regulatory barriers, could more productively be invested elsewhere. What is the policy argument for giving death tax relief to a family-business owner but not to a law-firm partner who has been representing family-owned businesses for years while prudently saving and investing his own assets? Why should the family-owned businesses be passed along to children tax-free, but not the mutual-fund holdings of the lawyer? Why should the lawyer be penalized by the government's tax policies for saving and investing his money rather than squandering it?
The biggest folly of the editorial, though, is that it is written in a newspaper that is controlled --and has been for years -- by an elaborate series of trusts and special stock classes established for the express purpose of avoiding estate taxes. Those with vast wealth, such as the Ochs and Sulzberger families, can afford to create such trusts and essentially avoid the brunt of the estate tax and its consequences. This, remember, is a tax that the Times lectures us this morning "is one of the most progressive and fair because it places its burden on those Americans who can best afford to pay it."
Here's what the Ochs and Sulzberger families -- who surely rank among those "who can best afford to pay it" -- did in order to avoid paying this progressive and fair tax, according to the 1999 quasi-authorized biography of the families, "The Trust":
"From 1934 through 1957 the common stock of The New York Times paid no dividends, the reason being that, under the intricate provisions of the Ochs Trust, common dividends were effectively a charge against the trust. Only the 8 percent preferred stock, held by Arthur, Iphigene, the Sulzberger children, and various Times associates and their heirs, generated cash. It was from these holdings that the family's income was largely derived, in addition to salaries and income from U.S. Treasury bills. Needs over and above that amount were usually met by the Ochs Trust, which owned several of the Sulzbergers' houses and even the cars they drove."
"This unwieldy arrangement worked for many years and the family had little concern about inheritance problems: When Iphigene died, the Ochs Trust would dissolve and the children would inherit the stock without further tax. But no provision had been made for payment of taxes upon the deaths of Punch and his sisters, nor was there a financial structure to ensure that the family could retain control of the New York Times Company into another generation. Under a recapitalization scheme conceived of by board member George Woods and approved by shareholders in May 1957, two classes of common stock were created, Class A nonvoting and Class B voting. The Ochs Trust and the Sulzbergers got the majority of Class B stock, and for the first time in over twenty years, the common stock began to pay dividends. When the Sulzberger children died, their heirs would retain control through the class B voting stock while selling as much of the Class A common stock as necessary to pay death duties."
Hara-Kiri: A New York Times op-ed page columnist writes this morning that George W. Bush "is, for starters, the first Republican leader who has figured out that it is an act of political hara-kiri to crusade against the Clintons." This is a questionable assessment, considering that Mr. Bush was elected partly on the strength of his repeated campaign pledge to, as he put it, "restore honor and dignity" to the White House.
Speaking Truth to Power: Another New York Times op-ed piece today is by a critic of welfare reform who says the 1996 legislation "lacked crucial supports single mothers and their children need to escape poverty." The writer says, "in the biblical tradition of prophets like Isaiah, the religious community is called to speak truth to power." Not even Bill Clinton -- not even Hillary Clinton -- says welfare reform was a mistake, and the statistics show that millions of persons have moved from welfare to work under the reform. Yet the Times op-ed page is still reliably offering space to those who cloak themselves in the language of religion to defend a failed welfare system. That failed system offered perverse incentives -- paying persons not to work and not to get married -- that had the effect of trapping millions in poverty.
Blacks, Whites and Hispanics: The New York Times metro section today reports the results of a poll on how the New York City police are doing their job. The article and an accompanying chart break out the statistics by "whites," "blacks" and "Hispanics." The U.S. census bureau counts Hispanics separately, and the Times' own stylebook notes "Hispanics can be of any race." But it is left totally unclear from the Times article how the poll on policing handled this issue. Could Hispanics vote in the poll also as whites or blacks? Or did they get to vote only once, as Hispanics? That could significantly affect poll results.
Billions and Trillions: An article in the national section of today's New York Times reports on a meeting between President Bush and Senate Democrats. The article refers to "the $1.6 billion tax cut he proposed in the campaign." That should say "trillion," not "billion."
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