Death and Taxes: The political fortunes of the estate tax.

No policy of the Bush administration has drawn more withering scorn than its drive to eliminate the estate tax. In opposing the tax, Bush "kowtow[s] to plutocrats" and displays "willful obtuseness." That's the verdict of Andrew Sullivan -- and he's one of the most pro-Bush pundits around.

For New York Times columnist Paul Krugman, the fact that only the top 2 percent of estates pay the tax means that the campaign against it is "[t]he most remarkable example of how politics has shifted in favor of the wealthy." Marshall Wittmann, another commentator, said the campaign was one of the reasons he left the Republican party this year. Conservative economist Irwin Stelzer has argued in The Weekly Standard that the estate tax serves the public good by promoting meritocracy. That's Sullivan's view, too.

Trying to abolish the estate tax does not, in short, win rave reviews on op-ed pages. But there is a strong case for abolition. What's more, abolition is popular. It's not a favor Republicans do for their contributors behind closed doors. Norm Coleman, Jim Talent, and John Thune -- the three candidates the GOP touted all year as its best shots at picking up Senate seats -- all trumpeted their opposition to the tax and accused their opponents of supporting it.

It's true that opposing the estate tax wins the Republicans support from some powerful lobbies: the National Restaurant Association, the National Beer Wholesalers Association, and the Farm Bureau, to name a few. But repeal also has broad and deep support from voters. In May, the Democratic polling firm Greenberg Quinlan Rosner found that 60 percent of likely voters favored repeal, with 43 percent saying they "strongly" favored it. (The only silver lining for Democrats is that voters preferred "reform" to repeal, once exposed to a series of arguments for that position.) Wittmann aside, the issue seems to be winning votes for the GOP.

Under the terms of the Bush tax cut, the estate tax is scheduled to be slowly phased out over the course of the decade. But then the tax cut expires, so the estate tax comes back in full force in 2011. Republicans are pushing to make estate-tax repeal permanent. In June, 41 House Democrats broke ranks to vote for permanent repeal. Eleven Senate Democrats -- more than a fifth of Tom Daschle's caucus -- voted for a resolution supporting permanent abolition.

While campaigning for re-election, Sen. Tim Johnson, a South Dakota Democrat, said he supports repeal (even though he actually voted against making repeal permanent). Democratic senator Mary Landrieu ran an ad that told Louisianans that "[s]he . . . voted eleven times to abolish the death tax."

Those Democrats who oppose repeal hasten to explain that they favor estate-tax relief. The estate tax currently exempts estates smaller than $675,000, and these Democrats would raise that exemption. Even the late Paul Wellstone took this tack in his re-election campaign. Estate- tax opponents, however, regard the exemption proposals as a dodge. Most of them build on an existing provision of estate-tax law that is so complicated that almost nobody ever gets exempted.

The debate over the estate tax is typically framed as a question of justice. Democrats say it is unfair to give a tax break to the super- rich or to reward their idle heirs. Republicans say it is unfair to tax the wealth that a person has accumulated over a lifetime, especially since he paid income taxes while earning it. The economic impact of the tax is at best a secondary issue. But it was concern about that impact that brought the issue before Congress in the first place.

Like other tax-policy ideas that infuriate liberals, the campaign against the estate tax originated with Arthur Laffer. In 1992, congressman Chris Cox called the famed supply-side economist and asked what tax cut would deliver the most economic bang for the buck. Laffer said getting rid of the estate tax would be at the top of his list.

The economic case against the tax is pretty simple. Being able to pass on wealth to one's children is a strong incentive for wealth accumulation. By reducing that incentive, the estate tax reduces saving and investment. Republican staffers at Congress's Joint Economic Committee estimated in 1998 that the effect of the estate tax has been to reduce America's capital stock by half a trillion dollars.

Liberals underestimate the cost of the estate tax by looking only at the 2 percent of estates that pay it. The tax generates costs for non- payers too. It's a major source of complexity in the tax code. The National Association of Manufacturers reports that 40 percent of its members have spent more than $100,000 each on estate-tax planning. The complexity of the tax also means that it is levied less on the basis of the size of a man's estate than on the shrewdness of his estate planners. In the late 1990s, estates worth between $2.5 and $5 million dollars that paid the tax actually paid a higher average tax rate than estates worth more than $20 million that paid it.

The tax forces the breakup of cash-poor family businesses. It does not appear to do much to promote economic equality, and it may even make inequality of consumption worse since it encourages the elderly rich to spend their money.

Is the estate tax nevertheless necessary to raise funds for the federal government? No. The estate tax brought in $26.5 billion -- around 1.4 percent of federal revenues -- last year. And that's an overestimate. In the 1980s, Stanford economist B. Douglas Bernheim concluded that because of its wealth-destroying effects, the estate tax probably caused federal revenues to be lower than they would be without the tax. Needless to say, the pro-tax pundits do not grapple with the possibility that the estate tax is a revenue loser.

But other economists do not regard the charge as outlandish. Indeed, important aspects of the foregoing case against the estate tax have been endorsed by many prominent liberal economists -- notably Clinton administration officials Alicia Munnell, Alan Blinder, and Joseph Stiglitz.

Cox was convinced that the estate tax hurts the economy. He also believed repeal was a real possibility. His home state of California had eliminated most of its estate taxes in a 1982 referendum, which passed by a landslide. In 1993, he introduced his bill to eliminate the estate tax federally.

Outside Congress, his ally was Jim Martin, the head of 60 Plus, a conservative seniors group. It was Martin who came up with the idea of relabeling the estate tax "the death tax." The phrase is a little misleading, since estate taxes hit only those who leave estates rather than everyone who dies. But Martin's rhetoric was politically brilliant, as it made the tax seem especially cruel. "Dying should not be a taxable event," he says.

In 1995, freshman Republican senator Jon Kyl of Arizona introduced Cox's House bill in his chamber. Cox, meanwhile, slowly built up co- sponsors. By 1996 there were 102; by 1998, 204.

The insurance industry has lobbied hard against repeal because it sells products designed to soften the blow of the tax. Non-profits, especially universities, believe the estate tax encourages donations. Ideological liberals have also tried to fight repeal.

But it's congressional budget rules that have kept the estate tax alive. Complying with them forced Republicans to opt for the slow phase-out followed by a revived estate tax, rather than an immediate and permanent repeal. The effect has been to make the tax code more complex rather than simpler, and estate planning harder rather than easier.

But Cox and his allies will eventually prevail -- and not because the super-rich have hoodwinked large swathes of the public, as Krugman posits. The campaign to repeal the estate tax reflects deep currents in American life, albeit ones that make liberals uncomfortable. Americans don't like taxes and tend to want them eliminated if possible. They don't resent the ability of wealthy people to give their fortunes to their kids. The day the estate tax expires for good is coming.