In the elections last week, voters in Washington State made a bold statement about inherited wealth: recycle it in order to assure new opportunities for all. Chuck Collins, a long-time activist on inequality issues, sent along this dispatch. Chuck is a Senior Scholar at the Institute for Policy Studies and a Fellow with the Tomales Bay Institute. He’s also co-author of Economic Apartheid in America.
One under-reported story from last Tuesday’s election is that the citizens of Washington State voted to retain their state estate tax. Anti-tax organizations sponsored an initiative, I-920, to abolish the tax – and given the state’s history of voting overwhelmingly for tax cuts, it looked like the estate tax was a goner. Initial polls indicated that over half Washington voters believed they would have to pay the tax.
In reality, the tax is only paid on estates over $2 million ($4 million for a couple), exempting 99.5 percent of taxpayers. Funds are dedicated to the Education Legacy Trust Account, and are used to reduce class size in K-12 education statewide and provide higher education scholarships for 7,900 lower income students.
The link between taxing inheritances and education funding is a perfect example of using “common wealth” for the common good. Bill Gates, Sr. made this argument in an op-ed in the Seattle Post Intelligencer opposing the initiative:
When someone has accumulated $10 million or $50 million or $50 billion (I can only think of one person in the last category), they have benefited disproportionately from society’s investments in education, public infrastructure, scientific research and other forms of society’s common wealth.
Show me a first-generation fortune and I’ll show you a successful partnership between a talented individual and society’s invisible venture capitalist, the commons. The commons includes our shared natural resources, our accumulated knowledge and the social wealth we build together, like the Internet or public infrastructure. None of us can individually claim to own the commons but all of us benefit from it.
Washington state has provided fertile ground for some very successful enterprises in the last generation. These individuals have made good use of their “American inheritance,” including our accumulated scientific heritage and natural bounty. They have harvested plenty from our society’s investments in technology and our remarkable system of property laws and regulated markets. Without this inheritance, they frankly wouldn’t have succeeded in quite the same way.
If we abolish the state’s inheritance tax we stop the opportunity recycling program. We allow the common wealth to stop flowing and concentrate it in the hands of a few. And worse, we slow the investments in opportunity that aim to provide every young person a chance, whether they were born in South Seattle or Mercer Island.
The repeal effort was soundly defeated by a margin of 62-38. Voters in every county, even in conservative western and southeastern Washington, voted against repeal.
Organizers say their main advantage was the linkage to education. “It would have been more difficult if we had not been able to tell people exactly where their money was going,” said Sandeep Kaushik, communications director for the campaign. “In every community, we knew how many students benefited.”
As we look at initiatives to use common wealth, such as rents for scarce ecological resources like the sky, we should consider the constituencies that will be engaged by different uses of the funds. It makes political and policy sense to identify the stakeholders that will win and protect a common wealth initative.
Thousands of students, educators, and parents were engaged in the effort to defeat Initiative-920. They understood the simple rationale for keeping the estate tax as an “opportunity recycling program.” And some of the state’s multi-millionaires were eloquent and outspoken about the appropriateness of the tax as a way to pay back the gift of education so that others would benefit as they had.
The federal estate tax debate could benefit from analyzing the Washington state experience. With the recent changes in Congress, the possibility of complete estate tax repeal grows remote as the votes aren’t there. If the estate tax survives this “lame duck” session in Congress without being gutted, then opportunities open up for positive reform.
Congress must act before 2010 if they want to ensure that the estate tax doesn’t go away for a year and then come back at its 2006 levels. Everyone agrees that inaction is bad policy and unwieldy for planning.
Why not suggest an estate tax reform that tracks the Washington state law? Raise the exemption to $2.5 million and introduce a progressive rate structure. Commons activists could propose that revenue be directed to a Children’s Opportunity Trust Fund to provide educational and wealth-creation opportunities. I wrote about this proposal in 2003 in an article called “Taxing Wealth to Broaden Wealth.” Such a proposal can now be seriously debated.