JUNE 9, 1997
Congress is looking into tax reforms, and the effects of estate taxes are under scrutiny. Are the taxes fair? Tom Bearden reports.
JIM LEHRER: Now, are estate taxes unfair? That's a key element of what Congress is looking at in reforming parts of the tax system. Tom Bearden reports.
TOM BEARDEN: The Bar 13 Ranch is simply spectacular--surrounded by snow-capped peaks the Goddard family has raised cattle in this Central Idaho Valley for three generations. They've worked hard, shunned short-term debt, even paid off the mortgage on the land. The Goddards want to keep raising cattle here, but they say they'll eventually have to sell the ranch unless the government changes what some call the death tax. Hilda Goddard, her daughter, Lee Ann, and sister-in-law Marjorie, thought everything was set.
HILDA GODDARD, Ranch Owner: I've worked awful hard on that. We've been here 30 years, and we have worked fourteen, sixteen hours a day, and we got it paid off in 1989. We're finally--were debt free. And it's a way of life that we love, and we love our--the beauty of it. Even though we work hard, we just like it. We like our lifestyle.
TOM BEARDEN: But then family patriarch Marvin Goddard was killed in a freak accident.
LEE ANN GODDARD FERRIS: In 1993, he was out, back up here, working with machinery, and his coat got caught in an auger type thing, and it pretty much choked him to death. So it was real sudden for all of us. He was very healthy, worked very hard, no health problems, and none of us really expected it to be that soon.
TOM BEARDEN: Lee Ann Goddard Ferris says as shocking as the accident was, it was only the beginning of the family's troubles.
LEE ANN GODDARD FERRIS: The next most traumatic thing, when I went down to visit the estate attorney and all of us went down to visit him individually, and I sat down, and he said, I just want you to know that there's no way you can keep this place. And I was shocked. I said, "What? We own this. How could we not be able to keep this? We have no debt." And him--and he penciled out the estate tax and how much we owed, and I was like a dazed deer looking into headlights coming to me.
TOM BEARDEN: Ownership of the ranch passed to Marvin's wife, Hilda, but when she dies, the federal estate tax will be levied on all of her assets that exceed $600,000.
LEE ANN GODDARD FERRIS: In our case it's pretty much impossible to pay. We have all unliquid assets--cattle, land, machinery, range rights. It means that we have to liquidate 55 percent of our assets to pay the government.
TOM BEARDEN: How much money are we talking about?
LEE ANN GODDARD FERRIS: Well, $3.3 million.
TOM BEARDEN: A lot of other people who are comfortable but would not consider themselves rich are discovering late in life that they owe potentially huge sums of money to the government, and they're complaining to Congress. Several proposals, ranging from an increase in $600,000 exemption to an outright repeal of the tax, are on the table. Gary Robbins is an economist with the Institute for Policy Innovation, a free market-oriented think tank based in Texas.
GARY ROBBINS, Economist: It's commonly held that the very rich pay estate taxes, but unfortunately, it's becoming more and more that even ordinary citizens are paying. In 1992, roughly 2.8 percent of all deaths resulted in the filing of an estate tax return. That's growing very rapidly at a rate of 5 or 6 percent per year and is expected to double by the year 2000 to nearly 5 percent of all deaths would result in an estate tax filing.
TOM BEARDEN: The estate tax we know today was imposed in 1916 to help pay for the first world war. Similar taxes were levied as early as 1797 and were also used primarily to finance wars. But the modern estate tax also has a social policy component. It was supposed to prevent extremely wealthy families like the Rockefellers from passing vast fortunes from generation to generation and to redistribute wealth to working people through government programs paid for by the taxes. Some argue that it's still working today. They point to the recent auction of some of Jacqueline Kennedy Onassis' belongings which were sold to pay the federal and state taxes on her estate. Chuck Collins thinks redistribution of wealth is still a valid social goal and a good reason not to repeal the tax.
CHUCK COLLINS, United For A Fair Economy: I don't think it's intellectually honest to sort of trot out the losing the family farm cases when they reflect such a small percent of the overall people who benefit from--who are affected by the estate tax. I mean, farmers are half of 1 percent of those who've been subject to the estate tax. It primarily falls on the nation's 1 to 2 percent wealthiest 1 to 2 percent of wealth holders, and that's probably a good thing.
TOM BEARDEN: Collins is co-director of a group called United For A Fair Economy, headquartered in Boston. He led this workshop in New York recently for religious activists who are working to distribute wealth more evenly.
CHUCK COLLINS: There has been this growth in income, but virtually all the growth in income has gone to the wealthiest 1 to 5 percent of households.
TOM BEARDEN: Collins put his money where his beliefs are. He's the great grandson of Oscar Mayer. He inherited a substantial trust fund and then gave it away. United For A Fair Economy studied the Forbes 400 List of Wealthiest Individuals and concluded that most of the people on it inherited instead of earned their fortunes.
CHUCK COLLINS: We found that over 70 percent started life born into the wealthiest 2 percent of the population. 43 percent inherited their way onto the Forbes 400 List, and this is at a time when we're dismantling the opportunity society, making education more of a privilege, health care more difficult.
TOM BEARDEN: Collins thinks the estate tax is a good way to address what he calls economic injustice. Gary Robbins disagrees, after looking at the same Forbes list.
GARY ROBBINS: Only 20 percent of those families had wealth that was inherited. In other words, 80 percent was wealth that was created through innovation, through entrepreneurialship, et cetera. And that is the really--the critical part to grow from the economy. In other words, the economy, itself, provides for a rearrangement of wealth.
TOM BEARDEN: Supporters of the tax argue that Washington needs the revenue to reduce the deficit. Robbins says the tax ought to be repealed because it's more trouble than it's worth.
GARY ROBBINS: It raised about $15 billion.
TOM BEARDEN: And in the broad scheme of things, is that significant?
GARY ROBBINS: It's about 1 percent of the total federal revenue.
TOM BEARDEN: Iris Lav is associate director of the Center for Budget & Policy Priorities, which does research on government policies affecting low and middle income Americans.
IRIS LAV, Budget & Policy Analyst: 1 percent of the federal revenue is a significant amount of revenue. As a comparison, for example, it is the amount of money the federal government spends on all of its programs for law enforcement and justice, so the FBI and the prisons and the courts and customs and border patrol and the aid that the federal government gives the states and communities to put police on the street, all of that are encompassed within 1 percent of federal revenue, which is the same amount that the estate tax raises.
TOM BEARDEN: Supporters also argue that research projects, underwritten by charitable organizations, would dry up without estate taxes. Donations aren't taxed, and proponents say that's a valuable incentive for people to give to charity. Sheldon Satisky is an estate attorney who volunteers his time to the American Heart Association. He says about 90 percent of the charity's income comes from estate donations. Studies have estimated that such giving would decline by more than 42 percent if the tax were repealed.
SHELDON SATISKY, Lawyer: We've got to give people incentives for making charitable contributions. We've got to increase those incentives as a matter of fact because in the future we're being asked to deliver a lot more services than we ever have in the past.
TOM BEARDEN: Meanwhile, people like the Goddards, who are asset rich and cash flow poor, are waiting for Congress to make up its mind. Thousands of small businesses are in the same boat. Many of the most ardent supporters of the tax, like Chuck Collins, advocate expanding some of the special tax breaks Congress has already granted to small businesses and family farms like Bar 13. But the Goddards say it will take an outright repeal of the estate tax to avoid having to sell their land. And that appears to be an unlikely prospect.
JIM LEHRER: As we reported in the News Summary, House Ways & Means Committee Chairman Bill Archer announced his tax plan today. It would gradually increase the estate tax credit to $1 million by the year 2014. We'll look at that and other details of that Republican tax plan tomorrow night.