The Estate Tax and Incentives for Charitable Giving

The estate tax is a tool that combats the dynastic concentration of wealth among a small subset of society while raising revenues that fund important government social services. It will in all probability never be levied upon the majority of estates in the United States. However, the majority of Americans support the repeal of the so-called “death tax”,http://www.prospect.org/cs/articles?articleId=7754, in effect acting to thwart their own economic self-interest.

In The Folklore of Capitalism, Arnold proposes that people act in ways that are counter to their own self interest “out of pure mystical idealism” that is “divorced from practical issues”. In the context of Arnold’s theory, one plausible explanation for the paradox of majority support for the repeal of the estate tax is the myth of the American Dream. The idea of America as a pure meritocracy where hard work allows individuals entry into the upper classes is deeply entrenched within our communal psyche. This emphasis upon aspirations towards upward class mobility provides a possible account for why people so overwhelmingly disfavor the estate tax, i.e. that they support its present repeal in the hope and expectation that either they or their children will one day have an estate large enough to be affected by it.

The rhetoric utilized by opponents of the estate tax frames it as tax upon dying instead of a tax upon the transfer of wealth. One aspect of this rhetoric is that it contributes to perceptions of the estate tax that are not aligned with reality - renaming it as the “death tax” alters people’s point of view without altering the reality of the tax itself. Indeed, the gap between perception and reality plays a role in other ways. For instance, in analyzing data from a 2003 opinion survey, Larry Bartels found that half of the respondents thought that most families would have to pay the estate tax, while another 18% did not know whether the federal estate tax applies generally or just to a few families http://www.prospect.org/cs/articles?articleId=7754. People overestimate the actual scope of the estate tax by miscalculating their place in the wealth hierarchy as well as through placing faith in a statistically unlikely rise into a higher class: “[n]ineteen percent of Americans say they are in the richest 1 percent and a further 20 percent expect to be someday.”http://query.nytimes.com/gst/fullpage.html?res=9B01EED61F3EF931A25752C0A9659C8B63&sec=&spon=&pagewanted=1

However, placing complete responsibility for the widespread irrational behavior towards the estate tax at the feet of the myth of the American Dream is an oversimplification. While it is clear that there is a gap between how people visualize the estate tax and its actual impact, decreasing the knowledge gap does not necessarily effectively combat distaste for the estate tax. In analyzing data from the 2002 National Election Study survey, Larry Bartels found that even people who are well-informed about politics and are much more aware of growing class stratification (and more likely to view economic inequality negatively) are “no less likely than less-informed citizens to support repealing the estate tax.”http://www.prospect.org/cs/articles?articleId=7754 Thus, people who understand the mythological aspects of the American Dream are just as likely to oppose the estate tax as those who place their faith in the fiction of a permeable class barrier.

One factor may be an alternative mythology that pushes issues of class distinctions and barriers, whether permeable or not, to the side. As noted by David Brooks, Americans resist thinking about wealth redistribution because they prefer not to focus upon the existence of wealth stratification and or upon divisions along lines of class.http://query.nytimes.com/gst/fullpage.html?res=9B01EED61F3EF931A25752C0A9659C8B63&sec=&spon=&pagewanted=2 Instead of thinking about American society through the lens of hierarchy, they prefer to use the lens of community. Thus, Brooks hypothesizes that the political landscape is “incredibly inhospitable to class-based politics” which are seen as “combative rather than unifying.”http://query.nytimes.com/gst/fullpage.html?res=9B01EED61F3EF931A25752C0A9659C8B63&sec=&spon=&pagewanted=2

Brooks’ theory is useful when placed alongside data from Larry Bartels’ article Unenlightened Self-Interest. Bartels notes that people who feel as if they pay too much in federal income taxes are substantially more likely to support a repeal of the estate tax.http://www.prospect.org/cs/articles?articleId=7754 Individuals who feel that their own taxes are a burden may feel a sense of empathy towards those affected by the estate tax. Although this could be attributed to lack of information, since at least in some cases it appears that misinformation does not sufficiently account for lack of support for the estate tax, it is useful to return to Brooks’ theory of a preference towards a community-oriented vision of society.

Given a preference for the myth of a community that is not divided by class, one possible way to advocate for the estate tax is to frame supporting it as a decision that strengthen the bonds of community, not just as an effort to fight inequality between members of society. One possible way to do this would be to emphasize that the estate tax incentivizes people to give to charity both during their lifetimes and within their wills, and to point out evidence that repealing the estate tax causes a decline in charitable giving.http://www.cbo.gov/ftpdocs/56xx/doc5650/07-15-CharitableGiving.pdf Charitable giving is not just about redistributing wealth – it strengthens communal ties and allows for cultural, scientific and technological growth and innovation.

Framing the estate tax not only as an attempt to prevent the solidification of the vast concentration of wealth among a small subset of society, but also as an effort to incentivize behavior that strengthens communal bonds may decrease support for its repeal even among those who are uninformed about the actual impact of the estate tax and who are uninformed about the increasingly limited possibilities of upward social mobility.

Works Cited 1. Larry M. Bartels, Unenlightened Self-Interest: The strange appeal of estate-tax repeal, The American Prospect, May 17, 2004. 2. David Brooks, The Triumph of Hope Over Self-Interest, N.Y. Times, January 12, 2003. 3. Congressional Budget Office, Congress of the United States, The Estate Tax and Charitable Giving (July 2004).