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COVER STORY:
Estate Tax
April 18, 2003 Episode no. 633
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BOB ABERNETHY, anchor: This week of income tax filing, ongoing controversy about another tax -- on the money rich people would like to leave their children. The administration wants to abolish the so-called estate tax altogether, agreeing with the well-off, who say one of their incentives to get rich is to be able to pass on money to their children. But opponents argue, among other points, that it's not fair for some young people to have a big financial head start just because their parents were rich.
Interestingly, as the issue is debated, the question is not how the government can best raise money but what social values the tax code should promote. Betty Rollin examines the arguments.
BETTY ROLLIN: The restaurant is J. R.'s Stockyards Inn in Tyson's Corner, Virginia. Jim Wordsworth has lunch here frequently, and that's because he owns the place -- and that's not all he owns. There are two corporate catering businesses, a 110-acre picnic facility, a marina, and more. The 60-year-old Wordsworth says it all began with a $28,000 investment.
JIM WORDSWORTH (Virginia Business Owner): That was my life savings, that was my Master Charge, that was my duping a couple of people into extending me a line of credit to get started.
ROLLIN: And you put all that money into the restaurant.
Mr. WORDSWORTH: Put every dime. Couldn't park at a meter. That $28,000 investment has grown, and I guess my total assets would be in the neighborhood of 20 to 30, perhaps.
ROLLIN: Million?
Mr. WORDSWORTH: Yes.
ROLLIN: When he dies, Jim says he will happily leave his money -- and his businesses -- to his only child Kimberly and to the many charities he now supports. But he will not happily pay an estate tax.
Mr. WORDSWORTH: I've paid every single tax I owe, I believe. And then on your death, when it's all over for you and your goal has been to create things for your family and those after you, to have the government come in and apply an additional tax -- I'm adamantly opposed to it.
ROLLIN: The estate tax, called the death tax by those like Jim Wordsworth who wish to repeal it, applies to those with assets of at least a million dollars when they die. A spouse may receive the entire estate untaxed, but other heirs must pay 49 percent of everything over the million-dollar exemption.
A law was passed in 2001 which will raise the exemption, leading to a one-year repeal in 2010. But the Bush administration is seeking permanent repeal.
Stephen Moore of the Conservative Club for Growth acknowledges that many wealthy people find legal loopholes to avoid paying the full tax but argues for those who do pay.
STEPHEN MOORE (Conservative Club for Growth): I think to confiscate wealth from people who have created businesses and jobs in this country is wrong, especially when they've paid their fair share of taxes.
ROLLIN: Although there are provisions for heirs of farmers and small business owners like Jim Wordsworth to pay the tax over time, many of those heirs claim that they would still have to sell off assets to pay the tax.
KIMBERLY WORDSWORTH: I'm sure the numbers would work to say, "Okay, if I sold this, then I could pay this." But I just don't think that's fair.
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ROLLIN: Sixty-nine-year-old Syracuse entrepreneur Martin Rothenberg and his family have a different view.
MARTIN ROTHENBERG (Entrepreneur): My financial success was a direct result of society's investment in me, and it's perfectly all right for  society to take some of that back at my death.
ROLLIN: Rothenberg went to college on the G.I. Bill and received subsequent government fellowships for his graduate education. He created a successful company that makes language learning software. Like Jim Wordsworth, he risked all he had to set up his business.
Mr. ROTHENBERG: I had my life savings invested, mortgage on my house, so it was touch and go for quite a while.
ROLLIN: But a few years ago, Rothenberg sold his business for $30 million, netting a third of it. After giving some money to each of his three children, he put most of it into a charitable family foundation, which the children run. The children fully accept that they will receive only a small percentage of their father's wealth. After all, they say, they didn't earn the money.
SANDY ROTHENBERG: I don't deserve it. It's something I'm getting because he's kind enough to leave me something.
ROLLIN: Rothenberg acknowledges that his charitable impulses have been influenced by the looming estate tax.
Mr. ROTHENBERG: It provided an incentive to set up a charitable foundation at that time because if the government was going to take it later, setting up a foundation enabled me to control [how] the money was spent.
CHUCK COLLINS (Responsible Wealth Organization): The estate tax is a tremendous incentive for people to give to charity.
ROLLIN: Chuck Collins runs the Boston-based organization Responsible Wealth. He and his partner Bill Gates Sr., father of the Microsoft billionaire, say they are fighting repeal of the estate tax to level the playing field for future generations and prevent the further concentration of wealth in this country.
Mr. COLLINS: What we'll see is the great inequalities of wealth and power that already exist will only become worse. We'll essentially have an American aristocracy that will, generation after generation, accumulate more wealth and power.
ROLLIN: But Stephen Moore and his side are far more concerned about government power.
Mr. MOORE: The question is who deserves the money. Does the government deserve it or does the person who made [it] get to decide how that money is spent? And I believe that in a pro-capitalist system we ought to let the person who made the money decide how the money is going to be spent.
Mr. COLLINS: The problem here is power. It's not really a question of how many speedboats or mansions someone has. It's not whether they're buying another house. It's whether they're buying another senator -- that's the problem.
ROLLIN: So how is justice better served? By compelling heirs to pay a share of their inheritance to society or by allowing them, in the name of family sanctity, to keep it all?
For RELIGION & ETHICS NEWSWEEKLY, this is Betty Rollin in Tyson's Corner, Virginia.
ABERNETHY: The House of Representatives is poised to pass legislation later this year which will abolish the estate tax permanently -- but that proposal remains stalled in the Senate, where Republican leaders are said to be several votes short.
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