A group of millionaires, billionaires, business leaders and activists Tuesday offered a proposal to increase estate taxes in a bid to highlight an issue that has been overshadowed in fiscal cliff negotiations.
The group United for a Fair Economy announced the plan, which would set a $4 million exemption for couples — $2 million for individuals — and a 45% rate that would climb to higher levels for larger estates.
Under current law, there is a 35% estate tax with a $5.12 million exemption per individual. If Congress does not come to an agreement on estate tax policy by Dec. 31, the estate tax would rise to 55% with a $1 million exemption.
The estate-tax proposal released on Tuesday was signed by 36 people, including Warren Buffett, chairman and chief executive of Berkshire Hathaway Inc.; John Bogle, founder of The Vanguard Group Inc.; Abigail Disney, a filmmaker and scion of the entertainment family; Bill Gates Sr., founder of Preston Gates & Ellis LLP; and Drummond Pike, a principal at Equilibrium Capital.
“We believe it is right to have a significant tax on large estates when they are passed on to the next generation,” the statement said. “We believe it is right morally and economically, and that an estate tax promotes democracy by slowing the concentration of wealth and power.”
The group said that under its plan, the estate tax “will only be paid by the top 1% of estates.”
Palmer Schoening, president of Schoening Strategies LLC and the leader of the Family Business Coalition, disputed the notion that the estate tax primarily affects the wealthy. Instead, he asserts, it hits farms, ranches and small manufacturers.
“At a time when family businesses have borne the brunt of job losses in the economy, it's the wrong tax,” Mr. Schoening said. “For them to call for half of that farm or ranch to be taxed away is just not right. It's morally unfair.”
Supporters of United for a Fair Economy plan dismissed such an argument as a “canard” that has distorted the estate-tax debate. Instead, they say the focus should be on the wealthy's pulling their weight.
“I'm more than happy to pay our fair share on the wealth that we've been fortunate enough to accumulate over the years,” Mr. Bogle said about his family's responsibility during a conference call with reporters.
If more of a large estate's funds go to the government, they're likely to have a bigger multiplier effect because the government will allocate them to programs that boost the economy, according to Robert Rubin, former Treasury secretary and co-chairman of Goldman Sachs Group Inc.
“They'll be spent so that 100% of them create demand,” said Mr. Rubin, who signed the estate-tax statement. “A substantial estate tax can contribute substantially and constructively to our economic well-being and our society.”
The challenge will be to get the estate tax into the fiscal cliff conversation. So far, it has been largely ignored by the White House. In addition, several Senate Democrats are leery of raising the estate tax above its current level.
“They're going to stay at $5 million and 35% because the Democrats have split themselves,” said Dean Zerbe, managing director of alliantgroup LP and a former Republican counsel to the Senate Finance Committee. “Republicans are pretty cohesive on it. I've not heard the White House say word one about this issue.”
Another Washington-watcher makes a similar prediction.
“If a deal is reached on taxes generally (either by year-end or retroactively after the new Congress convenes in January), that deal is likely to include an estate-tax exemption somewhere between $3.5 million and $5 million, and a 45% estate-tax rate,” Andrew Friedman, principal at The Washington Update, wrote in a recent newsletter.