Turning slogans into tax policy.

The second problem with the double taxation slogan is that it serves as a smokescreen. Although there is some overlap between the estate tax base and the income tax base, the same is true of many other forms of taxation, including taxes on real property and retail sales, not to mention payroll, franchise, and excise taxes. Logically, then, the objection to double taxation, if taken seriously, should apply with equal force to all of these taxes. Although the estate tax has several distinctive features, notably its contribution to the progressivity of the federal tax system, (16) there is no reason to single out this tax as a uniquely pernicious example of double taxation. Evidently, opposition to the estate tax stems not from an abstract principle against overlapping layers of taxation but rather from a specific hostility to taxing capital or the income it generates--or, perhaps, from a more general distaste for progressive taxation.

Efficiency. Advocates of estate tax repeal often argue that the tax is easily avoidable and raises little or no net revenue. (17) While the existing estate tax is far from ideal and therefore offers numerous opportunities for avoidance, especially in the area of valuation, only a caricaturist would describe the tax as "voluntary." (18) Indeed, it strains credulity to claim that the tax is excessively burdensome and at the same time easily avoidable. If the complaint is that some taxpayers use sophisticated planning techniques to reduce their effective tax rate, it does not follow that the tax should be repealed altogether; a more plausible approach would be to reform the tax by closing loopholes, broadening the base, and adjusting rates and exemptions. Nevertheless, anti-tax advocates seem more interested in cutting taxes than in closing loopholes. (19)

Opponents of the estate tax often suggest that simply abolishing the estate tax would actually raise net revenue, (20) but this appears to be based more on wishful thinking than on solid evidence. (21) Claims that the estate tax currently raises little or no net revenue rest on speculative assumptions and shaky empirical foundations. (22) It is tautologically true, of course, that costs of compliance and administration, together with indirect income tax effects, should be offset against the estate taxes collected by the government in arriving at a net revenue estimate, but in the absence of reliable data concerning those offsets, any estimate of net revenue must be viewed with caution. If the real concern is the relative efficiency of the estate tax as a source of revenue, the estate tax should be compared with plausible alternative revenue sources such as the income tax. In terms of behavioral incentives and costs of administration and compliance, the estate tax may fare better than its detractors would care to admit. (23)

Farms and Small Businesses. According to its opponents, the estate tax poses a special threat to family farms and small businesses because the heirs may be forced to sell a farm or business at the owner's death, sometimes at a depressed price, to pay the tax. (24) This argument, buttressed with opinion surveys and anecdotes concerning the plight of farmers and business owners, has proved especially effective in whipping up anti-tax sentiment. (25) In fact, however, the scope of the liquidity problem posed by the estate tax appears to be grossly overstated. (26) The vast majority of farmers and business owners are completely exempt from estate tax and those who face a potential tax liability should ordinarily be able to meet deathtime liquidity needs from life insurance proceeds or another designated source of funds. In this respect, a farm or business is not essentially different from any other prized asset that an owner wishes to pass on intact to heirs, and the estate tax is not essentially different from any other foreseeable deathtime expense. Furthermore, current law provides special estate tax relief for illiquid farm and business estates. (27) Any lingering concerns about liquidity could be addressed simply by raising the estate tax exemption or adjusting the rate schedule. More fundamentally, the liquidity problems posed by the estate tax pale in comparison to the far more daunting economic challenges confronting family farms and small businesses. Such enterprises often fail during the owner's life--or must be sold at death--for a host of reasons that have nothing to do with the estate tax: a farm or business may fail due to poor management or bad luck; it may be acquired or driven out of business by domestic or foreign competitors; the heirs may simply lack the necessary skill or motivation to continue the enterprise after the owner's death. Repealing the estate tax would do nothing to alleviate these problems but would eliminate the single most progressive element of the existing federal tax system.

B. The Rhetoric of Fairness

For anti-tax advocates, there is no ambiguity or uncertainty about the goal of abolishing the estate tax. Starting from a position of moral clarity and unbounded self-assurance, they see no need to test their economic arguments against observed facts or qualify their conclusions to accommodate competing policy goals. Instead, their mission is to discredit the estate tax and mobilize political support for its repeal. To this end, opponents of the estate tax have worked assiduously to exploit popular misperceptions of the tax and frame the case for repeal in terms of morality and fairness.

Public Opinion. Opponents of the estate tax have been remarkably successful in shaping public perceptions of the estate tax. Opinion polls routinely show that the tax is widely unpopular, with 70% or more of the public supporting abolition of the tax. (28) Of course, these results may be overstated, given the notoriously multifaceted nature of public opinion and rampant confusion in matters of tax policy. People often hold inconsistent views on fiscal policy--for example, simultaneously favoring tax cuts, increased public spending, and balanced budgets. (29) Thus, professional pollsters can easily manipulate opinion polls by framing questions in ways that yield desired responses. For example, estate tax repeal draws much higher approval ratings when it appears as an isolated, abstract proposition than when it is juxtaposed with alternative tax cuts or reductions in popular spending programs like Medicare or Social Security. (30) Thus, opinion polls do not merely reflect public opinion but also can be used to shape it, and the results should accordingly be viewed with caution. (31)

To some extent, opposition to the estate tax feeds on popular misperceptions about the scope and operation of the tax. (32) Survey evidence indicates that almost half the population believes that most families will have to pay an estate tax; in fact, the tax falls on only 2% of all estates. (33) Among small business owners, around one-third believe that they will incur an estate tax liability. (34) Activists and politicians who oppose the estate tax exploit the gap between perception and reality by referring to the estate tax as the "death tax" (35) and portraying the tax as a looming menace to families and businesses across the board. (36) An especially effective technique in this regard involves stories about "real" people who have (supposedly) suffered financial and emotional hardship as a result of the estate tax. (37) For anti-tax advocates, it does not matter if the facts are heavily embellished or even invented. The point of the stories is to persuade an audience by means of an emotional appeal and incidentally to shift the debate from dry, technical questions of tax policy to dramatic morality tales brimming with human interest. Stories, unlike economic arguments, convey a message that is unambiguous, easy to understand, and emotionally compelling. (38)

Success as Virtue. The estate tax has traditionally been defended on the ground that it promotes equality of opportunity by curbing excessive concentrations of inherited wealth. Opponents of the tax, however, turn the conventional argument about fairness on its head. Instead of focusing on the disparity of opportunity between heirs of wealthy parents and children who start out with nothing, they emphasize themes of upward mobility and unlimited opportunity to become rich, invoking the mythology of the American Dream. (39) They tell uplifting stories about hardworking, thrifty small business owners, implicitly portraying economic success as a just reward for hard work and personal virtue. By the same token, the estate tax is portrayed by its opponents as fundamentally unfair--a penalty on success and a threat to the American way of life. This line of argument is both simplistic and disingenuous, for it elides awkward questions about winners and losers, wealth distribution, and relative tax burdens. Nevertheless, by framing the debate in terms of black-and-white morality, opponents of the estate tax have seized the rhetorical high ground, turned the notion of fairness against defenders of the tax, and tapped into a powerful current of populist anti-tax sentiment.