On Wills, Trusts, and Future Generations: Public Justice and the Inheritance Tax

A friend of mine recently started working at a law firm that handles wills, trusts and estates. When I asked her on a lazy Saturday afternoon walk what drew her to the position—why she wanted to be involved in this kind of law, she started to talk about how this generation makes gifts to the next; how estates and trusts are not only acknowledgments of the person’s life and work, but also promises to the future, a last act, a hope for what is to come after. As we walked back toward her house, I started thinking about the recent conversations we have been having here at Shared Justice about poverty and opportunity. What does it mean to do justice when it comes to the gifts and estates left behind? What ought to be the right response to the longstanding debate over inheritance tax, when we consider the question of (public) justice—to both the present community and to future generations?

In 2012, as the fiscal cliff cast a shadow from Wall Street to Pennsylvania Avenue, Democrats and Republicans went toe-to-toe evaluating the Bush-era tax cuts. According to Politico, the options on the table in 2012 were threefold: to end the inheritance tax entirely—an option largely supported by conservatives in the House and Senate; to set the tax at a 45 percent rate with a $3.5 million exemption (only estates over this value could be taxed); or to maintain the then-current rate (35 percent tax with a $5 million exemption). In 2013, the estate tax rate stands at 40 percent, with the same $5.25 million exemption (according to the New York Times). This diminished form of estate tax was reached as part of the broader compromise to mitigate the fiscal cliff in the end of 2012.

The debate, which prompted commentary on both right and left, could seem out of place in the larger conversation about poverty and economic well being. After all, the tax only applies to a fraction of the U.S. population; why would the rate of tax on estates over $5 million present much cause for concern or debate? Because law always presents a principle, regardless of the size of the affected population. What we, as Americans, decide about taxing estates says something about what we believe about the distribution of a person’s resources upon their death. Should their assets be taxed? Does the distinction of properties over and under the exemption amount present a problematic principle in evaluating a person’s right to their property?

   "The questions posed by the estate tax go beyond the rate, the level of exemption, or many of the particulars that so hotly debated in Congress last year..."

"The questions posed by the estate tax go beyond the rate, the level of exemption, or many of the particulars that so hotly debated in Congress last year..."

Thinkers on the left point to social justice as a chief reason to maintain an estate tax. They argue that it provides a level of revenue to the government to answer rising inequality, both of wealth and of income (see this NYT article). At the same time, conservative thinkers argue that taxing inherited wealth unjustly infringes on those individuals or families’ rights to dispose of their property as they see fit. Proponents of the tax have referenced it as the “Paris Hilton tax,” noting that about 40 percent of the income in the U.S. accumulates in the top 1 percent of the population. Certainly, we treat taxes differently for those of different income levels; what would make estate tax any different?

But when I think about my friend’s approach to wills, trusts and estates—as gifts and promises to a future generation–I face a new question. Should the government levy taxes on inheritance that intends to do justice to future generations, in order to serve the (real, and pressing) needs of the current one? When an estate that bequeaths its assets to future generations is taxed as part of the government’s yearly revenue, we have in a real sense redistributed property, not merely from the wealthiest into a public fund (government), but also from a future or rising generation to the contemporary one. Taxes on this kind of property or estate would seem to run against this, as the government seeks revenue from the estate to serve contemporary needs, not least of which involves balancing the yearly federal budget.

Yet at the same time, we must ask: Does the tax perpetuate, rather than mitigate, socio-economic inequality, whatever it might mean for intergenerational justice? If the major estates worth tens of millions of dollars remain in the hands of a particular family, then while we might have satisfied our desire that they be free from undue government intrusion, we have done very little to change the way wealth is distributed—and in many ways, this, too, will be an affront to intergenerational justice.

Some have pointed out that the presence of the estate tax has encouraged charitable giving; estates that pass to spouses or to federally recognized charities are exempt from the tax. In 2004, the Congressional Budget Office found that a repeal of the tax would substantially reduce charitable giving, decreasing charitable gifts between 6 and 12 percent (see the full report here).

The questions posed by the estate tax go beyond the rate, the level of exemption, or many of the particulars that so hotly debated in Congress last year: They are questions of what we believe our government can and should do in the pursuit of the common good. The estate tax asks us to consider if we believe that one particular group (the wealthiest) is more responsible than others for investing their wealth in the current and future generations in a public way, rather than investing in the good of their offspring alone.

The Center for Public Justice argues in its Call for Intergenerational Justice that “citizens (in our democratic republic) must tell elected officials that we recognize our duty to temper our wants and even sacrifice with regard to some of our legitimate desires: for the sake of frugal stewardship and long-term sustainability of our economy, for the sake of continuing governmental care for the poor and weak, and for the sake of doing justice to our children and our children’s children.” This is where the conversation must begin when it comes to evaluating the merits of the tax. We know that citizens must make sacrifices in order to do justice not only for the contemporary community but also for long-term flourishing. Whether this flourishing is best achieved by the presence or absence of a tax is the question for further conversation.

-Hilary Sherratt is a recent graduate from Gordon College, where she majored in Religion, Ethics and Politics. She is currently working as a grant writer at Gordon, and loves all kinds of writing. She hopes to eventually get her PhD in theology or history. She blogs about everyday life at http://thewildlove.wordpress.com and tweets at @hilarysherratt