Statement of Charles E. Collins, Responsible Wealth, Boston, Massachusetts

My name is Chuck Collins. Thank you for allowing me to submit testimony in opposition to the repeal of the federal estate tax.

I am testifying on behalf of Responsible Wealth, a national association of business leaders and investors concerned about economic inequality in America. I am coordinator of a petition signed by over 700 business and philanthropic leaders entitled the Call to Preserve the Estate Tax.

Last Thursday, William H. Gates, Sr., testified on behalf of Responsible Wealth before the Subcommittee on Taxes and IRS Oversight of the Senate Finance Committee.

Our petition reads as follows:

We believe that complete repeal of the estate tax would be bad for our democracy, our economy, and our society. Repealing the estate tax, a constructive part of our tax structure for 85 years, would leave an unfortunate legacy for America's future generations.

Only the richest 2 percent of our nation's families currently pay any estate tax at all. Repealing the estate tax would enrich the heirs of America's millionaires and billionaires while hurting families who struggle to make ends meet.

The billions of dollars in state and federal revenues lost will inevitably be made up either by increasing taxes on those less able to pay or by cutting Social Security, Medicare, environmental protection, and many other government programs so important to our nation's continued well-being. The estate tax exerts a powerful and positive effect on charitable giving. Repeal would have a devastating impact on public charities ranging from institutions of higher education and land conservancies to organizations that assist the poor and disadvantaged.

We recognize the importance of protecting America's family farms and small businesses, and the estate tax has many special provisions that do so. But this concern, the rationale usually advanced for eliminating the estate tax, can be addressed by amending the existing estate tax system.

Let's fix the estate tax; not repeal it.

To date, over 700 individuals have signed the Call to Preserve the Estate Tax. Recent signers include:

Robert Crandall, retired Chairman, AMR Corporation (American Airlines)
Ted Turner, Vice Chairman, AOL Time Warner
Paul Brainerd, developer of PageMaker software
Adele Simmons, former President, The MacArthur Foundation
Sol Price, founder, Price Clubs and Chairman, Price Entities
J.P. Guerin, former Chairman, Pacific Southwest Airlines
Arthur Rock, Venture capitalist, Arthur Rock & Co.

A complete list of signers to date can be viewed on our web site: www.responsiblewealth.org.

There are many well known and super-wealthy individuals who have signed the Call to Preserve the Estate Tax. But the majority of the signers are more like the "millionaires next door" described in the recent book by Thomas Stanley and William Danko, those with wealth between one and ten million dollars. Many of the signers have family enterprises and will pay estate taxes, yet we believe it would be bad for our country to completely repeal it.

The signers of the Call to Preserve the Estate Tax want to stimulate a national dialogue about the potential negative consequences of estate tax repeal. We hope the Committee will address important fiscal and social questions, such as: What will a $7 billion reduction in charitable giving do to our hospitals, universities, nature conservancies, and human service organizations? How will states manage without the $5.5 billion in their annual revenue that comes linked to the federal estate tax? What is the true 20-year fiscal impact of repeal? What will be the impact on our economy, democracy and civic life of further concentrating wealth and power in the hands of a few, at the time of the greatest inequality since the 1920s?

Some might argue, "It's easy for these super-wealthy to call for preservation of the tax. After all, they can afford high-priced accountants and lawyers to avoid it." But the estate tax toll is paid primarily by the richest half of 1% of households, the 4,000 people who die each year with estates over $5 million. Many wealthy people do estate planning to reduce their estate taxes by gifts to family members while alive, and through charitable giving. But unless they leave their entire legacy to charity or a spouse, they cannot escape death nor estate taxes.

We believe, along with Theodore Roosevelt, Louis Brandeis, Herbert Hoover and scores of other wise observers in the early 1900s, that it is not in the interest of this country to have large fortunes passed from generation to generation creating great concentrations of wealth and power.

While we may not be able to insure that all children start their lives on a level playing field, that is something we should strive for and the estate tax brings us closer to that ideal. A good life should be something that is achieved. It should not be delivered as a result of the womb you happened to start out from.

We believe that the estate tax is an appropriate tax and accept it, as we do federal income taxes, as the price of living in the United States and being a U.S. citizen. It is appropriate that a special tax be imposed on those who have so very fully enjoyed the benefit of the things this country provides: schooling, order, freedom and encouragement to succeed and models of success. In a very practical sense the wealth one accumulates derives as much from the environment which this grand nation makes available and it is perfectly appropriate that the cost of its maintenance be paid back in proportion to what has been extracted.

In the present setting when new tax packages are being designed it seems to us particularly bad policy to subtract from the necessary revenue the sums produced by the estate tax when those dollars are going to have come from somewhere else; someone else. It is perfectly clear that that someone else will be a citizen with much less ability to pay than the heirs of our wealthiest people. We are concerned about the true fiscal impact of repeal. Revenues from this tax will grow dramatically in the future. The personal wealth that has been created in this country in the last 10 or 20 years is immense and will be reflected in sharply increased estate tax revenues.

We believe that repeal of estate tax will be harmful to our charitable institutions and vital civic sector. While many Americans give generously regardless of tax consequences, the estate tax greatly enhances giving, particularly among those with estates exceeding $20 million. Charities hurt by repeal would include religious organizations, which receive almost 60% of all bequests representing 10% of total bequest dollars. Educational, medical and scientific institutions receive 31% of bequest dollars. And 30% of bequest dollars go to private foundations, accounting for one-third of foundation assets. We do not know what the full consequences of wholesale repeal will be on our nation's hospitals, universities, land conservancies and private charities.

We know this Committee is discussing a proposal to make charitable contributions tax deductible for non-itemizers because it would encourage charitable giving. We support this proposal and believe the same logic applies to the estate tax. Tax policy is an inducement to enable already generous people to give more.

People oppose the estate tax claiming it is not fair. Each tax that we have will elicit those who feel this way. But we ask, "Fair compared to what?" Is it unfair to tax the accumulated wealth of the richest 1% of households, much of which is in the form of unappreciated capital gains that have never been taxed? Is it more fair to tax the wages of low wage workers trying to survive today? Is it fairer than a sales tax or property tax? We accept that we must have taxation, and that within the spectrum of taxes, the estate tax is among the most fair.

We do not deny that there are some situations where the application of the estate tax leads to a result that is undesirable. We are concerned that the current estate tax may still affect a small number of small farms and family-owned small businesses. The estate tax was reformed in 1997 to provide further protections for these enterprises through lower asset valuations, higher exemptions and extended low-interest payment terms. We advocate further reforming the estate tax by simplifying it and raising exemptions.

While we support reform of the estate tax, we strongly oppose outright repeal. Society is the co-creator of wealth and as such, we believe it is entirely reasonable that a portion of wealth be returned to society upon the death of those who have been blessed with great wealth. In this manner, the estate tax undergirds social investment that will allow the next generation their opportunity at the American Dream as our country's founders envisioned.