Stop the Madness (Part 2)

Many years ago, there was an era called the “20th century.”

It was a time when some terrible things happened, like world wars and genocide. It was also a time when many good things happened, such as universal vaccines and access to electricity.

Many of the best aspects of the 20th century originated in the United States. During those 100 years, the U.S. Congress tore down state laws of racial segregation. It passed laws (Social Security) to give economic integrity to senior citizens. It created protections for workers through collective bargaining laws and a 40-hour work week. It established environmental protections for our air and water.

These laws were good. They showed the world that the U.S. was a real democracy. Just as importantly, they did not change the nature of America as a free enterprise economy, where citizens succeeded on their own merit. During a century of reform, the U.S. economy exploded to become the envy of the world.

The 20th century was a triumph for democracy in the U.S. But several principles of it are being lost.

Take for example the current debate over the “Bush tax cuts” in U.S. Congress — or lack of debate to be more accurate. Now there are a lot of reasons to resist raising the marginal tax rates on high-earners, many of whom live in Fairfax County.

But how about high-earners who are dead?

Ten years ago, the Congress voted to phase out the estate tax thereby exempting inherited wealth from taxation. That vote repudiated a foundation principle of the 20th century — that America is a meritocracy and its laws are designed to prevent the aggregation of wealth and power in the hands of the few.

In fact, the Virginia companion (which Governor Harry Byrd signed in 1929) was specifically enacted to ensure that all citizens paid taxes. In 2006, the Assembly caved in to lobbying pressure and voted for repeal — a policy that lost $150M in annual revenue without creating a single job. (Previously Governor Warner had vetoed repeal in 2003 and saw his veto sustained by Assembly Democrats. Every single legislator that sustained his veto was re-elected, most easily, and Warner went to U.S. Senate with 67% of the vote).

Curiously, Congress enacted its Federal repeal only temporarily so that the tax would be fully eliminated in 2010, then come back in 2011 at the previous rate of 55% for every dollar over the $1.5 million threshold (that’s $3M for married couples).

When the Democrats took over Congress, this situation begged for a “common sense” solution. What value is there in exempting the children of multi-billionaires from any inheritance tax in 2010 , then allowing that same tax to come back at a level ($1.5 million) that has not been adjusted for inflation in many years?

A median solution would actually protect small business while reviving the Democratic creed first articulated by Andrew Jackson , a creed that sustains the Party in its reach from rural conservatives to urban liberals, i.e. that democratic government is not about protecting the rich and powerful but “the mechanic, the farmer, the shopkeeper.”

However, there has been no solution in the past four years. As it is, the inheritance tax continues to exist (or not) in a legal world of confusion and undeserved windfall (til 2011), while the U.S. deficit explodes beyond all reckoning.

With three months to go til Election Day, it may be too much to expect to see this perverse (and anti-democratic) outcome fixed. Of course, the real drama will occur in late December — after the Election — when enterprising beneficiaries will be faced with a set of incentives that are bizarre if not downright chilling.

Either way, the failure to address this issue is just that: a failure.

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