The fatally flawed inheritance tax

A deep cut in the federal death tax is coming up for a vote in the U.S. Senate. In the hope that our two senators might want some Democratic reasons to support such a cut, we urge them and others to consider these arguments:

• First, there are places in the world that remain fine and progressive though government does not seize the assets of people who die. Canada, for example. It has no death tax. Nor does New Zealand, nor does Sweden. Denmark does, but it tops out at 15 percent, which is where ours will be if the Senate supports the compromise soon coming up for a vote. • Our federal death tax has been temporarily lowered a few percentage points, but in 2011 reverts to a top rate of 55 percent. This is 20 percentage points higher than the top rate of tax on income. It is 40 percentage points higher than the top rate on capital gains. But the death tax is not a tax on income, or even on assets sold, but on assets held, including land and shares in a family business. Really, it is a property tax.

• The ordinary property tax, about which many citizens complain, is roughly 1 percent of the value of the property. The permanent death-tax rate tops out at 55 percent.

Imagine facing a bill for half of the value of your house. That is what faces heirs to a family business. In anticipation, they often sell the business to a big out-of-state company — which is what happened in Seattle to Ben Bridge Jeweler, in Tacoma to the Frank Russell Co., and in Everett to the Everett Herald, which was swallowed by the Washington Post.

The alternative to selling the business is for the owners to buy weird and unreasonable amounts of life insurance, which wastes the money they could have used to expand and create jobs.

The defenders of the inheritance tax, who falsely claim the mantle of fairness, boast that it applies only to millionaires. Well, yes. Starting in 2011, the exemption will be $1 million. For personal assets, $1 million is still a respectable sum — in Seattle terms, enough to buy about two houses and a couple of cars.

For a business that might own and have responsibility for land, buildings, machines, trucks, brand names, accounts receivable, etc., $1 million zips by in an instant. The million-dollar exemption means that if you are a one-person business, the government will let you die in peace, but if you have been successful enough to create jobs and become important to the community, the IRS will be the happiest mourner at your funeral.

We understand that the Democratic base believes deeply that businessmen and women ought to be taxed. We think so, too. Tax their incomes for the federal treasury. Tax their spending. Tax their property at a rate that reasonably can be paid — 1 percent a year on buildings and land is all right. But a tax of 55 percent when someone dies is not reasonable. It is like being broken into and looted. Death is bad enough without amplification.

This is why the American people always tell pollsters the death tax is the most unfair one. It is not because people don't understand their economic interests. We think they have a good sense of their interests, but they also have a sense of morality. They denounce the death tax because it piles calamity upon grief, and they do not see why anyone would want to do that.

In our highly partisan world, the death tax has given Republican candidates a perennial bogeyman with which to raise funds from owners of family businesses. Why the Democrats donate this issue to the opposition we cannot fathom. But because the Republicans are against this tax, the Democrats find themselves having to be for it. This stand gets them nothing.

Ninety years of the death tax has not created an egalitarian America. It has, however, fattened a troop of estate planners and insurance salesmen, most of whom vote Republican, and has fed most of the family newspapers in America to faceless corporate chains.

In this dispute, The Seattle Times Company is an interested party. We want to remain family-owned and independent. We think this desire is neither Democratic nor Republican, and we hope our senators think so, too.

We ask our senators to support the compromise offered by Sen. Jon Kyl, R-Ariz., to lower the death tax from 55 percent to 15 percent, which is the rate of tax on capital gains. We believe it is in their political interest to do it. And it is the right thing to do.