Trump vs. the Democrats: Is this the end of the 100-year war over the Estate Tax?

All is quiet on the Eastern front.  Stationed comfortably within the 58-story gold plated Trump Tower off 5th avenue in New York, the soon-to-be-45th President of the United States will soon embark upon his descent into the battlefield on Capitol Hill to potentially end a century long war regarding the estate tax. Standing in opposition to Donald Trump’s political army, presently in firm control of the Executive and Legislative branches, is a Democratic Party that was severely wounded by the 2016 election.  With the morale amongst Democrats arguably being at an all-time low, many may assume that the white flag will be raised in regard to the so-called “death tax.” 

However, considering what is at stake while we’re in the midst of the greatest wealth transfer in human history, with over $30 trillion dollars set to transfer over the next few decades, and with the estate tax believed by some to be one of the most quintessential weapons against the growing wealth inequality in the United States, it would be foolish to assume that the Democrats will not attempt to go down fighting with vigor and valor.  For a nation essentially founded upon a war over taxation, ultimately ending in 1776, perhaps this final battle over the estate tax should come as no surprise.

{mosads}For those who are not deeply entrenched within the battle over the estate tax or unfamiliar with its contentious history, the battle lines were drawn by academics, economists, and the affluent society well before this most recent election.  David Joulfaian’s extensive manuscript published in 2013 for the U.S. Department of Treasury’s Office of Tax Analysis, albeit from a political slant akin to the Obama administration, details the historical battle lines quite well. 

Within his manuscript, Joulfaian highlights the evolving liberal arguments in response to the brilliant economic publication known as The Wealth of Nations by Adam Smith, and the subsequent works by fellow classical economists Thomas Malthus and David Ricardo, which ultimately are at the heart of the Republican’s arguments against the estate tax.  Notably, Joulfaian references Andrew Carnegie’s 1862 publication, Gospel of Wealth, and that Carnegie, “a staunch supporter of progressive estate taxation and one of the richest men of his times,” argued that “the parent who leaves his son an enormous wealth generally deadens the talents and energies of the son, and tempts him to a lead a less useful and worthy life than he otherwise would.”  The work of the 19th century steel industrialist would later impact our nation’s 26th President. 

As evidenced in the Congressional Record in Dec. 4, 1906, President Theodore Roosevelt argued for the implementation of an inheritance tax and essentially espoused the battle cry for nearly all Democratic Presidents to follow by stating “The man of great wealth owes a peculiar obligation to the State, because he derives special advantages from the mere existence of government.”  Ten years following Roosevelt’s statement, the estate tax was implemented in 1916, ultimately as a way to raise revenue during the outbreak of World War I, but with the underpinnings of addressing wealth inequality in the United States.

Throughout its 100 year history, liberal economists and academics have published considerable amounts of analysis arguing in favor of the estate tax, especially in regard to the economic principle of inequality.  Economic inequality, generally defined as the difference found in various measures of economic well-being, is believed by liberal schools of thought to be one of the greatest economic ills plaguing fairness in American society.  A recent work on the topic of the estate tax and inequality is that of Pepperdine University School of Law Professor and Editor of the most popular tax law blog on the Internet, Paul L. Caron, and Boston College Law School Professor James Repetti. 

Their 2013 Pepperdine Law Review article titled Occupy the Tax Code: Using the Estate Tax to Reduce Inequality and Spur Economic Growth, argues that we should care about the increase in wealth inequality in the U.S., believing that it “contributes to a variety of adverse social consequences that persist across generations.”  Caron and Repetti conclude their article by arguing 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.”  While Caron and Repetti stay focused on the law and economics relating to the estate tax and inequality, prior prominent scholars were less restrained.    

Post-Keynesian Economist John Kenneth Galbraith, through his often-cited 1958 work of The Affluent Society, went on an all-out philosophical and economic assault on the “founding trinity of economics” of Smith, Malthus and Ricardo, essentially arguing that these three classical economists heavily marketed certain economic principles over others, much to the detriment of the poor working class.  Galbraith generally argues that amongst the three “ancient preoccupations of economics” of productivity, insecurity, and inequality, the wealth acquired by an affluent society’s productivity should be utilized to alleviate “the unedifying mortification of the flesh…from hunger, sickness, and cold” (i.e., “insecurity”) by focusing on and addressing inequality in the U.S. One of Galbraith’s general solutions to fighting inequality was a proposal that ordinarily shakes a conservative to their core, which is the redistribution of wealth.    

Of all of the conservative arguments against the continued imposition of the estate tax, such as it places undue economic burdens on society, its inherent unfairness or immoral nature for a citizen’s wealth to be taxed on death which already has been taxed many times before, or causes business to be sold prematurely, etc., nothing stirs more emotions than the suggestion of the redistribution of wealth.  The most well-known proponent of the redistribution of wealth was none other than Karl Marx. In 1848, Marx and fellow German philosopher Friedrich Engels, published The Communist Manifesto, which vehemently argued in favor of wealth redistribution to its greatest extent.  Many believe that Marxist views upon inequality led to revolutions in Europe, the Communist Soviet Republic, and ultimately WWI.

With the general beliefs so firmly entrenched within the GOP that any legislation or governmental regulation aimed at addressing economic inequality through wealth redistribution may be similar to Marxist policies, the Republican controlled Congress and Trump will see their fight to repeal the estate as one of nobility and honor.  Conversely, those representing the liberal base of the affluent society, such as George Soros, scoff at the Republicans associative beliefs regarding the estate tax and see its repeal as nothing more than providing “a huge tax windfall to the wealthiest 2 percent of Americans… [and, for] the rest of the public, it is a cruel hoax.”  But with lingering fears regarding wealth redistribution and adamant beliefs that the estate tax is simply bad economic  policy, such liberal commentary will fall on deaf ears with the Republicans marching onward towards its repeal.

With so much contentious history behind the estate tax, this presumed final battle over its continued existence will be of great interest to not only economists, academics, estate planning attorneys, and the affluent society, but it should also completely fascinate the general public.  The facts and circumstances surrounding the battle include a Dow approaching 20,000 points for the first time in stock market’s history and, according to some, a business environment where optimism is soaring into 2017. 

The Republicans seeking to repeal the estate tax believe it will be one of the final components to stir economic growth to unprecedented levels and “Make America Great Again.”  The Democrats seeking to maintain the estate tax believe it is vital to protecting American society from the adverse consequences believed to be associated with the undisputed growing inequality of wealth in the U.S.  Now with the one hundred year philosophical and economic war over the estate tax potentially coming to an end, with one side almost certain to become victorious, perhaps it is fitting to close with a quote on humility from one of our nation’s wartime presidents in Dwight D. Eisenhower: “Humility must always be the portion of any man who receives acclaim earned in blood of his followers and sacrifices of his friends.”  Perhaps the final resolution in 2017 will bring The Chance for Peace over the estate tax, which is long overdue.

Darren T. Case is a tax and estate planning shareholder attorney for Tiffany & Bosco, P.A., licensed in the State of Arizona. He is the Co-Author of the Arizona Estate Planning and Probate Handbook, published by Thomson Reuters.

The views expressed by authors are their own and not the views of The Hill.

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