Lobbying on the Estate Tax: Who Wins?

When you think about it, the connection is obvious, but I confess I was surprised by this new report by Tim Carney and Dick Patten on who's lobbying for the estate tax.  The report was paid for by a small-business group that opposes the tax, and it outlines who's been opposing them behind the scenes. Answer: the life insurance industry.  In the halls of Congress.  With bushels of money.

  • The life-insurance lobby spent $10 million a month lobbying in the first half of 2010. During this same period, only three industries - pharmaceuticals, electric utilities, and oil and gas - spent more over the same period.
  • The leader of the life-insurance lobby, the American Council of Life Insurers (ACLI), spent $2.32 million in lobbying in 2010's second quarter. Only 10 industries spent more.
  • The life-insurance industry exercises bi-partisan influence on the estate tax issue. Through most of 2010, the two leading life-insurance lobbyists - and thus the two biggest advocates for the death tax - were a former Republican governor and the wife of a Democratic Senator.
  • Former Oklahoma Governor Frank Keating, President of ACLI until just recently, supported estate tax repeal until taking his position at ACLI in 2003.
  • Out-going Senator Byron Dorgan (D-ND) has been a consistent and vocal supporter of repeal. His wife, Kimberly Dorgan, is the second-in-command at ACLI and an active lobbyist in favor of keeping the estate tax.
  • ACLI and other lobbying firms have funded and lobbied for "grassroots" front groups to paint a "spoiled rich kid" image for those who support repeal.
  • Warren Buffet, a major estate tax advocate, makes substantial profits through Berkshire Hathaway's holdings in multiple life-insurance companies.
  • While the majority of the life-insurance industry lobbies hard against repeal, the organization representing independent life-insurance agents actually favors repeal.
Buffett, in particular, has been presented as a sort of secular saint for his position on the estate tax, so its worth remembering that he, like everyone else in finance, is frequently talking his book.

The life insurance industry makes big money off of people avoiding the tax, and the lower the threshold, the more money they make.  Personally, I don't think the estate tax is a particularly good tax--it falls most heavily not on the largest estates, but on the middling ones which can't easily be structured around it.  And I think there are more economically efficient ways to deal with the problems posed by large estates, like simplifying the income tax, eliminating the capital-gains step-up on inherited assets, and possibly taxing inheritances as income.  But it's not really on the top of my list of burning issues, and given how much tax revenue we need to raise, I'm not really upset that it's going to expire.

But it's still worth remembering that the effect of the estate tax isn't necessarily to prevent people from transferring wealth.  It may simply be to force people to transfer wealth through life insurance and other third parties, who have a strong stake in seeing these laws continue to their benefit.