Voters like to repeal taxes that they consider unfair

A lot of smart people don’t get the public’s opposition to the death tax. After all, they say, it won’t touch most folks and the very rich can certainly afford it.

I’ll try to explain.

Most of us look beyond the moment. We don’t buy the faux populist rhetoric. When forced to think about taxes, we’re influenced by our jobs, our sense of fair play and our aspirations. And we don’t like it when politicians attempt to sneak one by. That’s why Initiative 920 is likely to become law.

The initiative would eliminate the state’s new estate tax. When voters repealed the inheritance tax in 1981, they allowed the state to pick up a share of the federal estate tax, collecting money that would otherwise have gone to the feds. In 2001, Congress acted to phase out the credit and, eventually, the estate tax itself. (They’re still working on that in D.C.)

Disregarding the change in federal law and the express will of the voters, the state continued to collect the money directly. The state Supreme Court called foul and tossed the tax in 2005.

Gov. Chris Gregoire and Democratic majorities in the House and Senate responded by immediately adopting a new estate tax with a whopping 19 percent top rate. Because they knew the tax would be unpopular, they wed it to popular ideas – class-size reduction and more college enrollments – and put the money in a new education “legacy” account. The gimmick survived a court challenge earlier this year but may face a sterner test at the polls in November.

The death tax has already been credited with killing Washington jobs. Services Group of America, owned by Tom Stewart, moved its headquarters from Seattle to Scottsdale, Ariz., to avoid it. Ninety jobs go with the move. Those employees and their families are doubtless not included in the state’s estimate that the tax will affect only about 210 estates this year.

Incidentally, when they tout the narrow base, proponents reveal an unconscionable cynicism. I thought “soaking the rich” had gone the way of the “power to the people”; tie-dye; and “2-4-6-8, organize and smash the state.” Why not just confiscate a rich guy’s estate every year and toss his family in the volcano?

Not every employer will follow Stewart’s high-profile exit strategy. Some will quietly arrange their affairs to avoid the tax, knocking holes in the state’s revenue estimates. Out-of-state firms will think twice about moving here.

Beyond those considerations, people simply think the tax is unfair. Class-based appeals to lower-income voters fall flat. We’ve seen it before. Most of us would rather celebrate success than covet it. Here, it’s the rich who supported the income tax in past elections and in current polls. When opponents of cheap car tabs claimed that the benefits would go to wealthy owners of pricey cars, the public was unmoved.

In 2003, a Kaiser/NPR/Harvard national survey found 54 percent of the public favored elimination of the “estate tax” and 60 percent favored eliminating the “death tax.” (They split the sample and tested both labels.) Asked why they wanted to eliminate it, 92 percent said the money had been taxed once and shouldn’t be taxed again. About 75 percent felt it might force the sale of businesses and farms. And 69 percent believed it might affect them someday. I suppose they believe, reasonably, that their estates will either grow or that government will lower the threshold to get them.

Other polls show similar results. This should not be surprising. People think it’s wrong to tax income twice. It’s wrong to put family-owned enterprises at risk. And it’s wrong for government to punish success by limiting parents’ ability to pass on an intact estate to their children. Those kids are often the primary reason people wake up early and put in long hours to create a good business. Even those of us who know we’ll never leave a multimillion-dollar estate cherish the dream for our children.

I-920 jeopardizes nothing. A strong economy is already producing the money the state needs to support the public schools and universities. It’s a matter of priorities. That’s something else the public understands well.

Richard S. Davis, president of the Washington Research Council, writes every other Wednesday. His columns do not necessarily reflect the views of the council. Write Davis at rsdavis@researchcouncil.org or Washington Research Council, 108 S. Washington St., Suite 406, Seattle, WA 98104-3408.