Gay Marriage and the Estate Tax

If there's poetic justice, the Republicans' focus on gay marriage and the estate tax will spur independent swing voters to sweep them from power.

President Bush and congressional Republicans have spent the past week rallying their base by flogging proposals on the issues headlined above that seem extreme and indefensible to many of us independents.

On gay marriage, the "Marriage Protection Amendment" that Bush is pushing would bar not only activist judges but also the people and their elected representatives from ever allowing gay couples to marry. So states where public opinion may someday come to favor same-sex marriage would find their hands tied by the Constitution. This from the party that purports to champion states' prerogatives in matters of local concern.

On the estate tax, Republicans (and some conservative Democrats) want Congress to abolish all taxes on inherited wealth, to the point of encouraging people who never work to live high on vast, untaxed bequests. This from the party that purports to champion work incentives.

The whole gay-marriage/estate-tax show is mainly symbolic, of course. The Marriage Protection Amendment has no chance of adoption. And the campaign for complete abolition of the estate tax has little chance. But if there is poetic justice in this world, the Republicans' revealing choice of symbols will backfire by spurring independent swing voters to sweep them from power.

Gay marriage. Many religious conservatives see homosexual acts as sins. And many other people fear that gay marriage would somehow harm an institution that has been a cornerstone of civilization for thousands of years.

I disagree. In particular, the notion that gay marriage would tempt straight and monogamous people to become gay or promiscuous seems far-fetched. So does the idea that gay marriage—which would move not a single child from a traditional household to a gay one—would be bad for children.

Nonetheless, Republicans are right to say that courts have no business revolutionizing marriage over the opposition of the people and their elected representatives. That's what the Massachusetts Supreme Judicial Court has already done and a few other state courts seem poised to do. Such judicial imperialism is undemocratic and divisive.

To capitalize on the backlash, Republicans argue that only a federal constitutional amendment can prevent activist judges from twisting the law either to impose gay marriage outright or to force all states to honor gay marriages recognized by any state.

I doubt that. There is no chance that the U.S. Supreme Court's current majority will find a right to gay marriage in the Constitution. And while a few more state courts may well impose gay marriage, the way to prevent such judicial fiats is to amend state constitutions. Nineteen states have already done that, and seven more may do it soon.

Republicans, of all people, should not be seeking a federal constitutional amendment to dictate what state law must be. Nor should they be interfering with future electoral majorities in states such as California, where the Democratic-controlled Legislature has already voted to legalize gay marriage. (Gov. Arnold Schwarzenegger vetoed the bill.)

But let's assume for the moment that Republicans are right to say that in the long run it will take a federal constitutional amendment to keep lawless federal courts out of the gay-marriage business. My colleague Jonathan Rauch (who sees no need for any amendment) has drafted language that would do the job:

"Nothing in this Constitution requires the federal government or any state to recognize anything other than the union of one man and one woman as a marriage."

Why have Bush and other Republicans insisted on far broader language, designed to pre-emptively disable the democratic process for all time? Because this campaign is not about principle. It is about pandering.

Estate tax. Abolishing the estate tax would cost the government $20 billion to $40 billion per year in revenue at a time of dangerous deficits. It would be a gift to the richest of the rich at a time of widening income inequalities. And it would incentivize idleness by promoting an aristocracy of inherited wealth rather than accomplishment.

This is not to deny that Congress should ease the burden that the peculiar operation of current law would impose on families that are not exactly stinking rich. The estate tax is set to disappear in 2010 and come back with a vengeance in 2011. As of then, the maximum exemption from the tax would be only $1 million, down from $2 million today. And the top rate would be 55 percent, up from 46 percent today.

Many Democrats oppose all efforts to set an exemption more generous than $1 million or a top rate below 55 percent. This is unreasonable. A $1 million inheritance is not what it used to be. Split among three heirs and invested in bonds, it would bring in about $17,000 a year. Try living on that.

Congress could set the exemption at $2 million or perhaps even $5 million without substantially increasing the number of heirs who would seize the chance to spend their lives goofing off. A more generous exemption would also reduce the pressure now felt by a few family businesses to sell out in order to raise enough cash to pay the tax.

But such pragmatic reforms would not satisfy the estate-tax abolitionists. Consider Nobel Prize-winning economist Edward Prescott, a professor at the W.P. Carey School of Business at Arizona State University. If his case for abolishing the estate tax is the best that a Nobelist can do, then the case is weak indeed.

"We can only grip the neck of our vibrant economic goose so tightly before it eventually dies and quits laying those golden eggs," Prescott asserts in a Wall Street Journal op-ed. Someone should tell him that the estate tax has been on the books for 90 years without strangling said goose.

Then there is the singularly silly "double taxation" complaint. Why, asks Prescott, should people have to pay a second tax on "hard-earned money, which has already been taxed once"?

One answer is that the real burden of the estate tax falls not on those who have already paid the income tax but on heirs who have typically done no work at all to create the wealth being taxed. A second answer is that the estate tax is often the only tax ever paid on unrealized gains from appreciated stocks, real estate, and the like. A third answer is that what matters is the aggregate tax burden, not the number of different taxes that comprise it. Indeed, even if the estate tax were abolished, most paychecks would still be taxed at least six times: First come payroll deductions for FICA, Medicare, and state and federal income taxes. Then we pay sales taxes and property taxes and others out of what's left.

Estate-tax abolitionists also suggest that wealthy people may "just quit working sooner than otherwise," in Prescott's words—or spend their money as fast as they can—if their heirs would have to share the leavings with Uncle Sam. Well, I have yet to encounter a parent who retired prematurely or bought a yacht because his estate would be taxed after death. Far more numerous, I suspect, are children who retire very prematurely to live on their inheritances.

The complaint that the estate tax forces sales or breakups of cash-poor family farms and other businesses seems wildly overstated. Abolitionists have been stumped when challenged to come up with examples involving family farms. In any event, people who inherit any kind of family business can defer full payment of the tax for 14 years at minimal interest rates. And minor reforms could exempt virtually all small farms and family businesses.

The abolitionists do make one valid point: The estate tax is highly inefficient because numerous loopholes and high rates have created a vast and wasteful lawyer-accountant estate-planning tax-avoidance industry. But the best ways to avoid such waste would be to close some of the loopholes; to lower the top rate to, say, 40 percent for all but the most enormous estates; and to raise the exemption for small estates. In any event, simply abolishing the estate tax might only spur those lawyers and accountants to busy themselves exploiting loopholes in the income tax.

Finally, abolitionists stress that the revenue from the estate tax is small potatoes in an $11 trillion economy and that we need to overhaul our entire system to tax consumption more and savings less.

Well, sure. But a deficit-ridden government needs to get those billions from somewhere. As for overhauling, "The tax system is like an old creaky house that should be extensively modified," says Brookings Institution economist William Gale. "But simply repealing the estate tax would be like bashing in the roof and doing nothing else."