Estate Tax Statement from Bill Gates, Sr.

Estate Tax Statement from Bill Gates, Sr.

The following statement was delivered on UFE's 12/15/09 Estate Tax Teleconference.

Bill Gates, Sr."In the Fall of 2000, riding in an elevator in Seattle, I overheard a conversation between two fellow lawyers, one of whom was proudly proclaiming that they were 'very close to repealing the estate tax.'  It hit me like a ton of bricks, and I decided at that moment to do something about it. 

A century ago, President Theodore Roosevelt expressed alarm about the dangerous concentration of wealth and power in the U.S. and called on the incoming 60th Congress to establish a federal estate tax on large fortunes. Its primary objective, Roosevelt said, 'should be to put a constantly increasing burden on the inheritance of those swollen fortunes which it is certainly of no benefit to this country to perpetuate.'
 
A century later, after a 12-year assault, the federal estate tax is here to stay. The anti-tax organizations and wealthy families that spent millions in lobbying funds to avoid paying billions in taxes have conceded they don’t have the Congressional votes to abolish the tax. But that doesn’t mean they won’t continue trying to erode it.

The estate tax cuts enacted under President Bush suspends the tax in its entirety for the year 2010 creating a bizarre incentive for wealthy people to prematurely die. Then in 2011 the estate comes back into effect under 2001 rules. Congress must act in this month to avoid such foolishness. The House of Representatives has acted by extending the 2009 rules through 2010. The Senate has just days within which to do something.

The current estate tax generously exempts the first $3.5 million of a person’s estate and $7 million for a couple.  The option taken by the House is to freeze the tax at these 2009 levels. Other options include establishing a progressive rate structure so that smaller estates pay lower rates while larger estates —those with over $50 million — pay higher rates. Whatever Congress does, it should not dilute the tax from its 2009 current level.

A one year patch is required to avert this fiscally and morally problematic scenario.
 
The facts are clear: the estate tax raises substantial revenue from those with the greatest capacity to pay. Abolishing the estate tax would cost more than $1 trillion. There are only three ways to fill that shortfall: cut spending, raise taxes on the middle class, or, the current favorite, pile it onto the national debt. A national debt which will register deficits expressed in trillions of dollars.
 
Instead of leaving a prodigious national debt for our children and grandchildren we should retain a robust estate tax and avoid the unprecedented interest costs of that debt.
  
Yet, a central criticism of the estate tax is the view that anyone who works hard and saves his money should be able to leave the results of his labor to his family.

Now I’m not against hard work, saving money, or taking care of your family—in fact I believe strongly in all of those things.  But I also believe that the person who has worked hard, saved money and accumulated wealth to take care of their family was NOT able to do that independently. 

A more careful look would disclose another fundamental factor in wealth creation—being born in America.  (What Warren Buffett refers to as winning the game of ovarian roulette.)

What is so special about place of birth? 

First off, economists agree that the presence of a stable market for goods and assets adds 30% to the value of everything we own—we have that in America, and that increases wealth. 

Second, economists tell us that 50% of the annual growth in our economy is a function of the introduction of new technology—we have that in America, and my family knows first-hand about how new technology can increase wealth.

But the benefits of being an American don’t stop there. 

In no other country in the world is the federal government spending more money on research.  The United States spends some $96 billion every year on fundamental research in universities and laboratories all over this country. 

And what comes of this research?  Well for starters how about things like jet engines, integrated circuits, the human genome, or the Internet.  Clearly the largest and most generous venture capitalist in the universe is Uncle Sam.

It is clear that the folks who have become wealthy from this significant social investment did not do it alone.  I believe their estates owe something back to the society that enabled the creation of that wealth.

Lester Thurow sums it up well. He says: 'The payoff from social investment in basic research is as clear as anything is ever going to be in economics.'

So again, how do people manage to get so rich in this country? It is because:

  • We have working and stable markets that maximize value;
  • Our science and technology keep producing new products and ways to get things done;
  • We have a government continuously and gratuitously injecting money into new and useful research;
  • And this is all topped off with a work force of ingenious graduates from an education subsidized by our government.

Warren Buffett says it, as usual, so very well:

'I personally think that society is responsible for a very significant percentage of what I’ve earned.  If you stick me down in the middle of Bangladesh or Peru or someplace, you’ll find out how much this talent is going to produce in the wrong kind of soil.  I will be struggling thirty years later.  I work in a market system that happens to reward what I do very well—disproportionately well.'

Can there be any question about the rectitude of this society recovering from the heirs of its most successful citizens, a portion of the fortune they leave at the time of their death? 

American society has made it possible for these men, women and their families to have an elegant life, first class education, and virtually unlimited options about where to go and what to do. 

Society does have a just claim on these fortunes, and it goes by the name of the Estate Tax."


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