Indiana Law Review Volum e 45 2011 Num ber 1 NOTES THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT: W HY THE DEBT FORCES A DEFENSE OF THE TAX M ATTHEW B. G AUDIN * “No pecuniary consideration is more urgent than the regular redemption and discharge of the public debt: on none can delay be more injurious, or an economy of the time more valuable.” — President George W ashington, M essage to the House of Representatives, 17931 INTRODUCTION For some time the federal estate tax has been a major tax issue in the United States. Conversations about the estate tax reverberate across the country from2 quaint farmhouses in Indiana to elegant lofts in M anhattan. The first years of the twenty-first century were no exception to estate tax dialogue. President George3 W . Bush made estate tax repeal a crucial component of his first term domestic goals, arguing this was necessary to save family farms. Opponents of the estate4 5 * J.D. Candidate, 2012, Indiana University School of Law—Indianapolis; B.A., 2009, Indiana University, Bloomington, Indiana. Soli Deo gloria! I would like to thank the following people: Rick and Debbie Gaudin, Tim and Debbie Green, Steve Dahmer, Professor Lawrence A. Jegen III, and the editors of the Indiana Law Review. Most especially, I would like to thank Shannon Dahmer for her never-ending love, support, patience, grace and wisdom. 1. The 18th Century, BUREAU OF PUB. DEBT, http://www.publicdebt.treas.gov/history/1700. htm (last visited Feb. 10, 2011). This quote and the following by President Washington in his Farewell Address present a good summary of the principal argument of this Note. “[I]t is essential that you should practically bear in mind, that towards the payment of debts there must be Revenue; that to have Revenue there must be taxes; that no taxes can be devised which are not more or less inconvenient and unpleasant . . . .” Rediscovering George Washington, PBS, http://www.pbs.org/ georgewashington/collection/other_1796sep19.html (last visited Oct. 6, 2011). 2. See, e.g., Grayson M.P. McCouch, The Empty Promise of Estate Tax Repeal, 28 VA. TAX REV. 369, 373 (2008) (stating, “Estate tax repeal figured as a prominent issue in the 2000 presidential campaign . . . .”). 3. See, e.g., id. 4. See, e.g., Mitch Frank & Andrew Goldstein, Campaign 2000: TIME Issues Briefing: The Four Big Differences, TIME, Nov. 6, 2000, http://www.time.com/time/magazine/article/ 0,9171,998392,00.html; Richard W. Stevenson, The 2000 Campaign: The Tax Plan; Bush Tax Plan: The Debate Takes Shape, N.Y. TIMES, Aug. 26, 2000, http://www.nytimes.com/2000/08/26/ 160 INDIANA LAW REVIEW [Vol. 45:159 tax claimed, “[I]t is inappropriate to impose a tax by reason of the death of a taxpayer.” They managed to displace the phrase “estate tax” from American6 discourse and insert in its place the expression “death tax.” 7 Supporters of the tax responded with their own arguments. In early 2001, the organization Responsible W ealth authored an advertisement in the New York Times, essentially declaring everyday Americans would pay for estate tax repeal. 8 W arren Buffet entered the debate and claimed the estate tax was crucial “in ‘helping create a society in which success is based on merit rather than inheritance.’” Apparently, these counterarguments were no match.9 In President Bush’s first year in office, Congress passed the Economic Growth and T ax Relief Reconciliation Act of 2001 (EGTRRA). Notably,10 EGTRRA affected the estate tax, steadily lowering estate tax rates, while increasing the exemption amounts. In 2010, EGTRRA entirely eliminated the11 estate tax. Nevertheless, all was not lost for the supporters of the estate tax. A12 sunset provision scheduled the estate tax to resurface in 2011. This reemerged13 estate tax would have had the same provisions as the 2001 estate tax. However,14 Congress preempted this reemergence in December 2010, as it passed the Tax15 Relief, U nemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act). The 2010 Tax Relief Act did bring back the estate tax,16 but it changed its terms, setting the exemption at $5 million and fixing the rate at thirty-five percent. 17 us/the-2000-campaign-the-tax-plan-bush-tax-plan-the-debate-takes-shape.html. 5. See Daniel W. Matthews, A Fight to the Death: Slaying the Estate Tax Repeal Hydra, 28 WHITTIER L. REV. 663, 677 (2006). 6. Reginald Mombrun, Let's Protect Our Economy and Democracy from Paris Hilton: The Case for Keeping the Estate Tax, 33 OHIO N.U. L. REV. 61, 77 (2007) (citation omitted). 7. See, e.g., Matthews, supra note 5, at 671-74. 8. See id. at 690. 9. Id. (quoting David Cay Johnston, Dozens of Rich Americans Join In Fight to Retain the Estate Tax: Buffet, Soros and Gate’s Father Call It Only Fair, N.Y. TIMES, Feb. 14, 2001, at A1). 10. Pub. L. No. 107-16, 115 Stat. 38 (2001) (codified in scattered sections of 26 U.S.C.); see Sergio Pareja, Estate Tax Repeal Under EGTRRA: A Proposal for Simplification, 38 REAL PROP. PROB. & TR. J. 73, 74 (2003). 11. See Kay Bell, Estate Tax Lies in Limbo, But For How Long?, FOX BUS. (Oct. 4, 2010), http://www.foxbusiness.com/personal-finance/2010/10/04/estate-tax-lies-limbo-long/. 12. See id. 13. See id. This provision was inserted by Congress “to comply with congressional budget rules.” Matthews, supra note 5, at 665 n.13. Specifically, Congress had to conform to the Byrd Rule. See Mombrun, supra note 6, at 69. 14. See Matthews, supra note 5, at 665. 15. See Julia Steinway, Tax Relief Act of 2010: Estate, Gift and GST Tax Changes, MARTINDALE.COM (Dec. 27, 2010), http://www.martindale.com/taxation-law/article_Much-Shelist- Denenberg-Ament-Rubenstein_1210438.htm. 16. Pub. L. No. 111-312, 124 Stat. 3296 (2010) (codified in scattered sections of 26 U.S.C.). 17. See Paul Sullivan, Estate Tax Will Return Next Year, But Few Will Pay It, N.Y. TIMES, 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 161 The 2010 Tax Relief Act is “set to expire in two years,” setting up another crucial estate tax debate. Eventually a decision should be made whether to18 permanently repeal the estate tax or to retain it, perhaps with some modifications. This Note addresses that decision. Part I discusses the history of the death-time taxation in America and Europe. Part II summarizes the arguments for and against the estate tax. Part III briefly balances these arguments and concludes that the adverse consequences of a massive national debt compel estate tax preservation (at least for the time being). Part IV says that if estate tax supporters want to increase support for the tax, they should focus their argum ents on exclusively using the tax to reduce, or at least hold off, the growing national debt. I. THE H ISTORY OF D EATH-TIM E AND ESTATE TAXATION The history of estate taxation is vast and detailed. It stretches back thousands of years. It is a history filled with kings, churches, wars, and evasions. 19 20 21 22 23 This part of the Note attempts to succinctly display this history. Having some knowledge of this history should enable the reader to better understand present day arguments. A. The Ancient World Estate or death-time “taxes are ancient taxes.” Archaeologists and24 historians have proven that these taxes appeared first in Ancient Egypt during the reign of Psametichus I (654-616 B.C.). Psametichus I forced “a ten percent tax”25 Dec. 18, 2010, at B1, available at http://www.nytimes.com/2010/12/18/your-money/taxes/ 18wealth.html. It should be noted that the new law gives options to those heirs who had decedents die in 2010. See id. One option is “to treat the estate by the tax laws in place in 2010, . . . calculat[ing] the capital gains on all assets in the estate to determine if the value is above a level the Internal Revenue Service is allowing.” Id. The other choice is to simply use the new estate tax provisions. Id. 18. See id. 19. See Louis Eisenstein, The Rise and Decline of the Estate Tax, 11 TAX. L. REV. 223, 223 (1956). 20. See, e.g., GARY ROBBINS, THE HERITAGE FOUND., ESTATE TAXES: AN HISTORICAL PERSPECTIVE 1 (2004), available at http://s3.amazonaws.com/thf_media/2004/pdf/bg1719.pdf. 21. See, e.g., Barbara R. Hauser, Death Duties and Immorality: Why Civilization Needs Inheritances, 34 REAL PROP. PROB. & TR. J. 363, 369-70 (1999). 22. See, e.g., Eddie Metrejean & Cheryl Metrejean, Death Taxes in the United States: A Brief History, 7 J. BUS. & ECON. RES. 33, 34-35 (2009), available at http://journals.cluteonline. com/index.php/JBER/article/view/2246/2294; ROBBINS, supra note 20, at 2. 23. See, e.g., Hauser, supra note 21, at 367. Archaeologists have found a papyrus presumably depicting ancient Egyptian death-time tax evasion. Mary R. Wampler, Note, Repealing the Federal Estate Tax: Death to the Death Tax, or Will Reform Save the Day?, 25 SETON HALL LEGIS. J. 525, 528 n.13 (2001). 24. Eisenstein, supra note 19, at 223. 25. Hauser, supra note 21, at 366. 162 INDIANA LAW REVIEW [Vol. 45:159 upon death-time land conveyances. He justified the tax as a “redemption fee,”26 27 because in ancient Egypt “‘full title rested only in the ruler.’” The tax even28 applied to “[c]lose fam ily m embers,” unlike some other ancient death-time29 taxes.30 The ancient Greeks had a form of death-time taxation that they seemed to have copied from the Egyptians. Evidently this tax created a significant amount31 of government income in addition to generating protest and fraud.32 The Romans, like the G reeks, looked to the ancient Egyptians for inspiration for death-time taxation. During the first century A.D., “the Vicesina33 H ereditatium, a tax on successions and legacies to all but close relatives,”34 financed Roman army pensions. The tax applied exclusively to Roman35 citizens, and it had a “rate of [five] per cent [sic] on all of the excess over the36 specified minimum.” Emperor Augustus established the tax by using cunning37 political strategy, vowing to restore a “direct land tax” if his tax plan was not approved. Augustus’s successors tinkered with his original law. Trajan, for38 39 example, commanded “almost all close relatives” be excused from the tax. 40 Pliny the Younger applauded this reform. He claim ed that “a father who had41 just lost his son should not be called upon in his bereavement to take an inventory of what had been left him; to tax him at such a time would be to add to his burden 26. Id. 27. Id. 28. Id. (quoting WILLIAM J. SHULTZ, THE TAXATION OF INHERITANCE 3 (1926)). 29. Id. 30. See, e.g., id. at 367. 31. Id. 32. Id. 33. See James Hagerman, Jr., The Federal Estate Tax: Grounds for Adoption of This Method of Taxation in America, Brief Comment on U.S. Supreme Court Decisions on the Subject, and Suggestion of Certain Inequities in Operation That Might be Removed, 8 A.B.A. J. 92, 93 (1922). 34. Darien B. Jacobson et al., The Estate Tax: Ninety Years and Counting, in 27 INTERNAL REVENUE SERV., SOI BULL., no. 1, at 118 (2007), available at http://www.irs.gov/pub/irs-soi/ 07sumbul.pdf. 35. Hauser, supra note 21, at 367. This fact, that nations instituted death-time taxation generally to raise revenue, appears throughout history. See, e.g., Kristine S. Knaplund, Charity for the “Death Tax”: The Impact of Legislation on Charitable Bequests, 45 GONZ. L. REV. 713, 721 (2010) (referring to the fact that the United States government used a death-time tax to help finance the Civil War). 36. J. F. Gilliam, The Minimum Subject to the Vicesima Hereditatium, 73 AM. J. PHILOLOGY 397, 397 (1952). 37. Frank J. Maguire, Problems in Estate Planning, 30 CORNELL L.Q. 271, 272 (1945). 38. Hauser, supra note 21, at 367. 39. See id. at 367-68. 40. Id. at 367. 41. See id.; MAX WEST, THE INHERITANCE TAX 189 (Faculty of Political Sci. of Columbia. Univ. eds., 2d rev. ed. 1908). 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 163 of sorrow . . . .”42 The Roman death-time tax became a prolific revenue supply. Emperor43 Caracalla decided to raise “the tax rate,” eliminate the family exclusions, and increase the tax base by conferring “Roman citizenship” upon “all the free inhabitants of the whole Empire.” The deterioration of the death-time tax,44 however, accompanied the fading of the Empire. The tax vanished entirely “by45 the time [the eastern Roman] Emperor Justinian . . . compiled the Justinian Code in 533 A.D.” 46 B. The M iddle Ages and Early M odern Europe Death-time taxes were present in Europe during the M iddle Ages. It47 became rather ordinary for a tax to be imposed after the passing of an individual. The taxes, which were generally “annual property rent,” developed48 49 from “the fact that the sovereign or the state owned all assets.” Genoa, inspired50 by R om an law, “adopted a two percent death tax with no exemptions for close family” in 1395. In England, the king would confer real property “to certain51 individuals during their lifetimes.” After death, the estate could keep this52 “property upon payment of an estate tax.” M any communes in the Canton of53 Glarus in Switzerland “had a Todesfallsteuer or death tax for the benefit of their churches or schools.” 54 The church also involved itself in death-time taxes. Pope Innocent IV55 recommended that individuals give one-third of their possessions to the church upon death. The church in England would regularly demand “the second-best56 beast, which the family brought with them to the burial.” To help “support the57 war with France,” the English church courts introduced a “stamp duty” applicable to probate actions. Needless to say, the church took these matters very58 42. WEST, supra note 41, at 189-90 (citation omitted). 43. See Hauser, supra note 21, at 367-68. 44. Id. (citation omitted). 45. See id. at 368. 46. Id. 47. See id.; Jacobson et al., supra note 34, at 118. 48. Jacobson et al., supra note 34, at 118. 49. Id. 50. ROBBINS, supra note 20, at 1. 51. Hauser, supra note 21, at 371. 52. ROBBINS, supra note 20, at 1. 53. Id. 54. WEST, supra note 41, at 39. 55. See Hauser, supra note 21, at 369-70. 56. See id. at 370. 57. Id. at 369-70. 58. Id. at 370. 164 INDIANA LAW REVIEW [Vol. 45:159 seriously, castigating to Hell those bequeathing no inheritance to the church. 59 Other European nations began adding death-time taxes as the centuries progressed. Germany and the Dutch provinces, for exam ple, established60 inheritance taxes. “By the eighteenth century, many countries had adopted61 some form of duties, fees, or taxes on transfers of property at death.”62 C. The Early United States Europeans carried the notion of death-time taxation to America as they crossed the Atlantic Ocean. These taxes appeared early in American history63 during crises when the country needed more revenue.64 1. The Stamp Act of 1797. — Near the close of the eighteenth century,65 President John Adams and the United States faced a military threat from France. 66 An undeclared naval war existed between the two nations, with France ordering “seizure of American merchant ships,” primarily in response to America’s recently signed treaty with Great Britain. A special envoy to France, consisting67 of Elbridge Gerry, Charles Cotesworth Pinckney, and John M arshall (the legendary jurist), failed to elicit peace. President Adams and Congress prepared68 the nation for war by strengthening the navy. Congress passed the Stamp Act69 of 1797 to help finance this buildup. The Act required a stamp “on wills offered70 for probate, as well as on inventories and letters of administration. Stamps also 59. See id. 60. See id. at 372. 61. Id. 62. Wampler, supra note 23, at 529. 63. See Mombrun, supra note 6, at 67. 64. See ROBBINS, supra note 20, at 2 (arguing, “[E]state taxes were used as a sporadic, and temporary, way to finance wars”); see also David Frederick, Historical Lessons From the Life and Death of the Federal Estate Tax, 49 AM. J. LEGAL HIST. 197, 214 (2007) (saying, “Throughout the nineteenth century Congress used death taxes as an effective financial tool to quickly, and with relatively little resistance, raise substantial sums of money in the face of economic crises.”); Jacobson et al., supra note 34, at 119 (discussing how a death-time tax was used to raise revenue during a naval crisis with France in 1797); Knaplund, supra note 35, at 721 (mentioning that a death-time tax was instituted to help finance the Civil War). 65. Ch. XI, 1 Stat. 527 (1797) (repealed 1802). 66. See Jacobson et al., supra note 34, at 119. 67. The XYZ Affair and the Quasi-War with France, 1798-1800, U.S. DEP’T OF STATE OFF. OF THE HISTORIAN, http://history.state.gov/milestones/1784-1800/XYZ (last visited Feb. 11, 2011). 68. See id. 69. See Jacobson et al., supra note 34, at 119; see also John Adams, NAVAL HIST. & HERITAGE COMMAND, http://www.history.navy.mil/danfs/j3/john_adams-i.htm (last visited Feb. 11, 2011) (saying, “Difficulties with France during . . . [President Adams’s] administration prompted him to push vigorously for construction of the Navy which had been neglected after the treaty of Paris.”). 70. See Jacobson et al., supra note 34, at 119. 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 165 were required on receipts and discharges from legacies and intestate distributions of property.” Congress repealed the Act once the emergency ended. During71 72 the W ar of 1812, Treasury Secretary Alexander Dallas advocated for the restoration of death-time taxation. The House W ays and M eans Committee,73 however, repudiated the Secretary’s proposal. The war concluded soon after,74 making the tax unessential.75 2. The Tax Act of 1862. — A death-time tax returned to the United States76 with the onset of the Civil W ar when Congress passed the Tax Act of 1862 to produce revenue. The T ax A ct of 1862 “not only taxed probated wills, but77 taxed the privilege of inheritance as well.” The Congressional Globe extolled78 the Act “as a ‘large source of revenue which could be most conveniently collected.’” The Internal Revenue Law of 1864, which reinstituted and79 80 adjusted the tax, cam e about as war costs increased. The new amendments81 included a “succession tax,” along with “the nation’s first gift tax.” Once the82 war ended the need for extra revenue abated, and Congress dismantled the tax.83 3. The War Revenue Act of 1898. — W ith the outbreak of the Spanish-84 American W ar, Congress again turned to death-time taxation to raise revenue. 85 The W ar Revenue Act of 1898 raised a substantial amount of disagreement and debate. Populists backed the tax, claiming it forced the affluent to pay a just86 allocation of taxes. Congressman Oscar Underwood of Alabama stated that the87 tax “is levied on a class of wealth, a class of property, and a class of citizens that do not otherwise pay their fair share of the burdens of the Government.” Others88 replied that the tax would create “a disincentive to accumulate wealth” and 71. Id. 72. See id. 73. See Metrejean & Metrejean, supra note 22, at 34. 74. Id. 75. See id. 76. Ch. CXIX, 12 Stat. 432 (1862) (modified 1864). 77. See Knaplund, supra note 35, at 721; ROBBINS, supra note 20, at 2. 78. Wampler, supra note 23, at 530. 79. Barry W. Johnson & Martha Britton Eller, Federal Taxation of Inheritance and Wealth Transfers, in INHERITANCE AND WEALTH IN AMERICA 61, 65 (Robert K. Miller, Jr. & Stephen J. McNamee eds., 1998) (quoting Office of Tax Analysis, Legislative History of Death Taxes in the United States 2 (1963) (unpublished manuscript)). 80. Ch. CLXXIII, 13 Stat. 223 (1864) (repealed 1870, 1872). 81. See Johnson & Eller, supra note 79, at 65. 82. Id.; Jacobson et al., supra note 34, at 119. 83. ROBBINS, supra note 20, at 2. 84. Ch. 448, 30 Stat. 448 (1898) (repealed 1902). 85. Metrejean & Metrejean, supra note 22, at 35. 86. See Wampler, supra note 23, at 530-31. 87. Id. 88. Eisenstein, supra note 19, at 228 (citation omitted). 166 INDIANA LAW REVIEW [Vol. 45:159 compel “small businesses” to close. In Knowlton v. Moore, the Supreme Court89 upheld the tax against a constitutional challenge. The A ct brought in $14.190 million, though it only bound “personal property” to taxation. Congress91 repealed the Act when the war concluded in 1902.92 D. The M odern United States In the early twentieth century, America was deep into the Progressive Era. 93 Progressives began clamoring for a death-time tax to more equitably distribute wealth. President Theodore R oosevelt, a supporter of such a tax, claimed that94 immense fortunes “are needless and useless, for they make no one really happy and increase no one’s usefulness, and furthermore they do infinite harm and they contain the threat of far greater harm.” Congress generally did not agree with95 the progressives, as it rejected death-time taxes in 1909 and 1913.96 As W orld W ar I approached, “m ilitary appropriations” forced Congress to find means to generate revenue. Congress responded by enacting an estate tax97 in 1916, in addition to “the modern-day income tax.” The estate tax portion had98 similar characteristics of today’s estate tax, and “[i]t applied to net estates,99 defined as the total property owned by a decedent, the gross estate, less deductions.” Residents received a $50,000 exemption, with no exemption100 going to non-residents. Following the initial exemption, the rates began at one101 percent on smaller estates and increased to ten percent on estates valued above $5 m illion. The estate owed taxes “[one] year after the decedent’s death” with a102 five percent markdown applied to estates paying before this deadline. A six103 percent delayed payment fine applied “unless the delay was deemed 89. Wampler, supra note 23, at 531. 90. Knowlton v. Moore, 178 U.S. 41 (1900). 91. Jacobson et al., supra note 34, at 120. 92. Id. 93. See Progressive Era (1890-1913), AMERICA’S LIBRARY, http://www.americaslibrary.gov/ jb/progress/jb_progress_subj.html (last visited Feb. 12, 2011) (citing the Progressive Era as being 1890-1913). 94. See, e.g., Eisenstein, supra note 19, at 228-29. The Progressive Party supported “a graduated inheritance tax as a national means of equalizing the holders of property.” Id. at 229 (citation omitted). 95. Id. at 228 (citation omitted). 96. Id. at 229. 97. See id. at 230. 98. ROBBINS, supra note 20, at 2. 99. Id. 100. Jacobson et al., supra note 34, at 120. 101. Id. 102. ROBBINS, supra note 20, at 2. 103. Jacobson et al., supra note 34, at 120-21. 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 167 ‘unavoidable.’” Like the W ar Revenue Act of 1898, the Supreme Court upheld104 the constitutionality of the 1916 estate tax in New York Trust Co. v. Eisner.105 The United States’ entry into W orld W ar I prompted C ongress to raise the rates of the estate tax in 1917, as the country needed more revenue. A two106 107 percent tax applied to estates under $50,000, with the highest estates taxed at twenty-five percent. The estate tax did not apply to military deaths. After108 109 the war, the tax did not disappear like previous death-tim e taxes in the United States.110 For the next five decades, other than some slight alterations especially in exemptions and rates, the estate tax stayed fairly stable. In the 1920s, Treasury111 Secretary Andrew M ellon sought rate reduction, if not outright repeal of the estate tax. He argued there was no “social necessity for breaking up large112 fortunes in” America. Eventually, the rates were reduced, but the estate tax113 survived. The onset of the Great Depression forced an increase in the rates of114 the estate tax to combat the growing deficit. Secretary M ellon, “[t]orn between115 a dislike for deficits and a dislike for the tax,” supported the rate increase. 116 President Franklin Roosevelt’s Administration, however, shifted the primary purpose of the estate tax away from revenue generation and towards wealth redistribution when it made “[t]he levelling of hereditary fortunes . . . one of its objectives.” The Senate at one point increased the highest rate to sixty percent117 with the aid of Senator LaFollette of W isconsin. This rate applied only to118 estates greater than $10 million. 119 President Roosevelt continued to support wealth redistribution through the estate tax saying, “The transmission from generation to generation of vast fortunes by will, inheritance, or gift is not consistent with the ideals and 104. Id. at 121. 105. 256 U.S. 345 (1921). 106. ROBBINS, supra note 20, at 2. 107. JOHN R. LUCKEY, CONG. RESEARCH SERV., A HISTORY OF THE FEDERAL ESTATE, GIFT AND GENERATION-SKIPPING TAXES 7 (2003), available at http://assets.opencrs.com/rpts/95- 444_20030409.pdf. 108. Id. 109. Id. 110. ROBBINS, supra note 20, at 2. 111. Metrejean & Metrejean, supra note 22, at 36. 112. See Eisenstein, supra note 19, at 232. 113. Id. at 232. 114. See id. at 232-33. An increase in rates, however, preceded this reduction. See id. at 232. 115. See id. at 234. 116. Id. at 234. This sentiment expressed by Secretary Mellon is similar to a basic premise of this Note. Essentially, as the title indicates, the current national debt compels a defense of the estate tax. 117. Id. at 235. 118. Id. 119. Id. 168 INDIANA LAW REVIEW [Vol. 45:159 sentiments of the American people.” The importance of evening out estates120 and equitable distribution began to fade after 1935. Rates rose again in 1941,121 but this was arguably based on the need for revenue to fund the military buildup for W orld W ar II. 122 A considerable change in the estate tax occurred in 1976 when Congress merged “the estate tax and the gift tax into a single graduated rate.” Congress123 also joined the exemptions of the two taxes, creating a “unified estate and gift tax credit.” In 1981, Congress increased the exemption amount to $600,000. 124 125 Congress gave smaller estates more relief in 1997, boosting the exemption to $1 million. However, Congress scheduled the exemption to be introduced126 gradually, with the full effect not occurring until 2006. Congress ratified127 EGTRRA in 2001, steadily reducing the estate tax rates and wholly eliminating the tax in 2010. Then Congress passed the 2010 Tax Relief Act, keeping the128 estate tax for at least two more years.129 This brief history of the death-time and estate taxation demonstrates three overriding principles: (1) death-time taxation has a long history both in the United States and abroad; (2) death-time taxation, throughout much of its130 history, was generally used to produce revenue; and (3) in America, death-time131 taxes were first used mainly in times of war or national crisis. W ith those132 points in mind, the next section of this Note considers in greater detail the primary arguments both in support of, and in opposition of, permanent repeal of the estate tax. II. A RGUM ENTS IN FAVOR OF AND AGAINST PERM ANENT R EPEAL OF THE ESTATE TAX Politicians, academics, tax attorneys, economists and others have asserted various arguments in support of, or in opposition to, permanent repeal of the 120. Id. 121. See id. at 236. 122. See id. Congress simply merged a short-term 1940 defense tax into the estate tax and made it permanent. Id. 123. Mombrun, supra note 6, at 68. 124. ROBBINS, supra note 20, at 3. 125. Id. 126. LUCKEY, supra note 107, at 23. 127. Id. 128. See Bell, supra note 11. 129. See Sullivan, supra note 17. 130. See, e.g., Hauser, supra note 21, at 367 (mentioning a Roman death-time tax); Jacobson et al., supra note 34, at 119 (discussing the Stamp Act of 1797, a death-time tax in early America). 131. See, e.g., Frederick, supra note 64, at 214; Hauser, supra note 21, at 367 (discussing how Emperor Augustus used a Roman death-time tax to finance army pensions); Knaplund, supra note 35, at 721 (discussing how the United States used a death-time tax to help finance the Civil War). 132. See supra note 64 and accompanying text. 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 169 estate tax. This section considers only the primary arguments of each respective side, leaving the marginal arguments out. Knowing the key arguments for both sides allows one to more rationally balance the interests in determ ining the approach Congress should adopt when deciding whether to permanently keep the estate tax or repeal it. 133 A. Arguments Against the Estate Tax 1. The Estate Tax and Small Businesses.— Opponents of the estate tax have consistently highlighted the adverse effects the tax has on farmers and small business owners. On the campaign trail in 2000, George W . Bush claimed,134 “[T]o keep farms in the family, we are going to get rid of the death tax . . . .” 135 In 2010, Senator Jim DeM int of South Carolina insisted, “Killing the death tax will create jobs and save thousands of family farms and small businesses. It’s time to kill the death tax once and for all . . . .” 136 Opponents generally assert, “Estates that consist largely of family-owned businesses are the most vulnerable to the death tax.” These businesses typically137 reinvest earned income “back into the business,” acquiring land or equipment for example. The estate must incorporate the decedent’s share of these assets in138 the value of the estate when a business owner dies. Because these assets are139 normally “valuable” they can push the decedent’s estate past the estate tax minimum. If the “business’s available cash does not cover” the estate tax when140 it comes due, these assets may need to be sold. The problem, however, is that141 it is not sim ple to sell these assets, as they are essential in keeping the business 133. The purpose in this section is not to weigh the sides against each other, but instead to attempt to lay out the arguments of each. Prominent studies that each group uses to evidence its claims will be cited as a means to both further explain each side and to give an example of where each side has drawn some of its proof. 134. See, e.g., Wampler, supra note 23, at 536; CURTIS S. DUBAY, THE HERITAGE FOUND., THE ECONOMIC CASE AGAINST THE DEATH TAX 3 (2010), available at http://thf_media.s3. amazonaws.com/2010/pdf/bg2440.pdf; PATRICK F. FAGAN, THE HERITAGE FOUND., HOW THE DEATH TAX KILLS SMALL BUSINESSES, COMMUNITIES—AND CIVIL SOCIETY 1 (2010), available at http://thf_media.s3.amazonaws.com/2010/pdf/bg2438.pdf; Douglas Holtz-Eakin, Kill the “Death Tax,” L.A. TIMES, May 6, 2009, http://articles.latimes.com/2009/may/ 06/opinion/oe-holtz-eakin6. 135. Matthews, supra note 5, at 677 (citation omitted). 136. DeMint to Force Vote to Kill Death Tax Permanently, JIM DEMINT: U.S. SENATOR, SOUTH CAROLINA, http://demint.senate.gov/public/index.cfm?p=PressReleases&ContentRecord_ id=bd148757-fd1b-4f32-82b5-ab0e71a9a3f3&ContentType_id=a2165b4b-3970-4d37-97e5- 4832fcc68398&Group_id=9ee606ce-9200-47af-90a5-024143e9974c&MonthDisplay= 7&YearDisplay=2010 (last visited Nov. 06, 2010). 137. DUBAY, supra note 134, at 3. 138. Id. 139. Id. 140. Id. 141. Id. 170 INDIANA LAW REVIEW [Vol. 45:159 running. Opponents say that if the estate must sell these assets the business142 will likely lose some “income-generating capability” and need to lay off employees. The worst case scenario would be complete liquidation of the143 business, which some say may and does happen. 144 Additionally, these businesses must spend money on accountants and lawyers for estate tax planning, further increasing costs. A 1998 Congressional Report145 stated that family businesses spend on “average $16,113 on lawyers, $14,632 on accountants, and $2,392 on other financial advisers.”146 Opponents contend that the estate tax unfavorably affects more than just affluent Americans. A “congressional Joint Economic Com mittee” report147 remarked that “more than 37,000 ‘closely-held businesses,’ as well as 24,000 farms” paid the estate tax from 1995 to 2004. The Committee concluded “that148 the estate tax has broad and significant costs for thousands of family businesses.”149 Opponents of the estate tax draw on personal estate tax “horror stories” to drive home their point. In 1995 opponents of the tax brought Chester Thigpen,150 an African American tree farmer and “grandson of slaves,” to W ashington, D.C. to testify to Congress. Thigpen testified that under the estate tax his family151 may have to sell his farm because of the high value of his property and trees, even though according to him, he was not rich. M ore recently, Victor M avar, a152 businessman, testified that he had declined to invest in new businesses in hurricane-ravaged Biloxi because of the estate tax. He said he did not want to153 142. See id. 143. Id. 144. See Joseph H. Astrachan & Roger Tutterow, The Effect of Estate Taxes on Family Business: Survey Results, 9 FAM. BUS. REV. 303, 303 (1996) (saying, “Estate taxes are a crucial issue facing our country, causing family-owned businesses to downsize and liquidate . . . .”); see also Daniel Kadlec, Why These Guys are Dead Wrong, TIME, Feb. 26, 2001, http://www.time.com/ time/magazine/article/0,9171,999309,00.html (arguing the estate “tax may even force the sale or partial liquidation of a farm or family business”). 145. See Stephanie A. Weber, Note, Re-Thinking the Estate Tax: Should Farmers Bear the Burden of a Wealth Tax?, 9 ELDER L.J. 109, 118 (2001). 146. Id. 147. See, e.g., Jeff Jacoby, Op-Ed., Let’s Keep the Death Tax Dead, BOS. GLOBE, Jan. 3, 2010, http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2010/01/03/lets_keep_ the_death_tax_dead (arguing, “[T]he nation’s wealthiest citizens aren’t the ones the estate tax hurts.”). 148. Id. 149. Id. 150. Matthews, supra note 5, at 674-77; see also FAGAN, supra note 134, at 2-6 (discussing these types of stories). 151. Matthews, supra note 5, at 681-82. 152. Id. 153. FAGAN, supra note 134, at 5. 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 171 encumber his children with a possible tax after his death. M r. M avar154 continued, saying the estate “tax has encouraged a ‘wealth-redistribution,’ not from the rich to the poor, but from the local community to the national corporations.” Kevin Hancock, president of M aine-based Hancock Lumber,155 stated the estate “tax has been a leading cause of green-space and forest loss in M aine, as multiple private forests have been sold in order to pay the death tax.” 156 These stories add a personal dimension to the usually abstract debate about the estate tax. They are “an easy sell to most Americans even though most do not own businesses or farms.” 157 2. The Estate Tax and the Revenue It G enerates.— Opponents of the estate tax generally argue the estate tax does not raise a sufficient amount of revenue. 158 The estate tax generated “less than [one percent] of federal revenue” in 2008. 159 O pponents “simply dismiss the revenue yield [of the estate tax] as insignificant.” In fact, opponents have said the estate tax may actually lose160 income.161 3. The Estate Tax and Investment and Savings.— Opponents of the estate tax say the tax dampens “savings and investment” by incentivizing spending to avoid paying the tax. The theory is the estate tax conveys the following message to162 Americans: If you work hard, save thriftily and accumulate a fortune, you’ll be taxed constantly and then see up to one-half of your savings go to your distant Uncle Sam instead of the heirs that you choose. W hy not stop building up your net wealth, spend what you have and die poor?163 The “excessive spending” by those trying to avoid the tax divides “the wealthy from the non-wealthy” still more. Additionally, opponents say the estate “tax164 slows economic growth, destroys jobs, and suppresses wages because it is a tax on capital and on entrepreneurship.” W illiam Beach of the Heritage165 Foundation says “that the federal estate tax alone is responsible for the loss of 154. Id. 155. Id. (citation omitted). 156. Id. at 4. 157. Matthews, supra note 5, at 675. 158. See, e.g., id. at 696. 159. Michael J. Graetz, It’s Fair, and We Need the Revenue, WALL ST. J., Sept. 20, 2010, http://online.wsj.com/article/SB10001424052748704358904575477593075638722.html. 160. Matthews, supra note 5, at 696. 161. See, e.g., J.D. Foster, Is the Estate Tax A (Revenue) Loser?, TAX FOUND., Dec. 20, 1999, http://www.taxfoundation.org/news/show/187.html. 162. See, e.g., DUBAY, supra note 134, at 2. 163. Ed McCaffery, It’s Unfair, and There’s a Better Way, WALL ST. J., Sept. 20, 2010, http://online.wsj.com/article/SB10001424052748704206804575467920711270954.html. 164. Wampler, supra note 23, at 537. 165. DUBAY, supra note 134, at 2. 172 INDIANA LAW REVIEW [Vol. 45:159 between 170,000 and 250,000 potential jobs each year.” 166 Opponents say the estate tax restrains entrepreneurs themselves from investing in and creating their own businesses. W hen an entrepreneur assesses167 whether to start a business, he considers all potential costs to figure his possible gain. The estate tax is one such potential cost. O pponents say this cost168 169 prospect “causes many entrepreneurs to refrain from starting a business,” affecting economic and employment growth. 170 Generally, opponents of the estate tax argue that the estate tax creates resource apportionm ent inefficiency. Capital owners are induced “to shift171 resources from their most productive uses into less efficient (though more tax- friendly) uses.” These less efficient investment options decrease output. 172 173 Opponents of the estate tax say there would have been $850 billion more “of capital in the economy” had there been no estate tax in the previous decades. 174 Thus, the contention is “that the estate tax results in a net economic loss for the United States economy.”175 4. The Compliance Cost of the Estate Tax.— Opponents of the estate tax cite, in their view, high compliance costs and inefficiency as a reason to eliminate the tax. Opponents say the estate tax can be circumvented (at least somewhat) by176 employing attorneys and estate planners. This is “economically wasteful.” 177 178 A 1992 report “estimated the cost of complying with estate taxes to be [one dollar] for every dollar of revenue raised— nearly five times more costly per dollar of revenue than the notoriously complex federal income tax.” The179 report goes on to say, “[T]he ratio of excess burden to revenue of wealth transfer 166. WILLIAM W. BEACH, THE HERITAGE FOUND., SEVEN REASONS WHY CONGRESS SHOULD REPEAL, NOT FIX, THE DEATH TAX 1 (2009), available at http://thf_media.s3.amazonaws.com/ 2009/pdf/wm2688.pdf. 167. See DUBAY, supra note 134, at 2-3. 168. See id. at 2. 169. See id. (maintaining the estate tax “raises the costs an entrepreneur will pay because it promises to confiscate a portion of his business upon his death”). 170. Id. 171. See, e.g., JOINT ECON. COMM., 105TH CONG., THE ECONOMICS OF THE ESTATE TAX at iii (Comm. Print 1998), available at http://www.house.gov/jec/fiscal/tx-grwth/estattax/estattax.htm (claiming, “The distortionary incentives in the estate tax result in the inefficient allocation of resources, discouraging saving and investment and lowering the after-tax return on investments.”). 172. Id. at 18. 173. See id. 174. Matthews, supra note 5, at 694. 175. Id. 176. See, e.g., ANDREW CHAMBERLAIN ET AL., TAX FOUND., DEATH AND TAXES: THE ECONOMICS OF THE FEDERAL ESTATE TAX 3-4, 8 (2006), available at http://www.taxfoundation. org/files/sr142.pdf. 177. See id. at 3. 178. Id. 179. Id. 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 173 taxes is among the highest of all taxes.” Opponents have claimed that the estate180 tax’s “administrative costs” to the IR S are too great when balanced against the revenue generated. A dvertisements in newspapers have put administrative181 costs of the estate as high as “sixty-five cents on the dollar.” 182 5. Traditionally Disadvantaged Groups.— According to opponents of the estate tax, the tax excessively harms traditionally disadvantaged groups, like minorities, disabled persons, and women. Opponents frequently cite examples183 where the businesses of black owners may not survive the owner’s death because of the estate tax. Congressional Black Caucus member Sanford Bishop said,184 “Employees of family businesses, many of whom are minorities, are at risk of losing their jobs because their employers are forced to pay the unfair and exorbitant death taxes levied on them . . . .” President Bush communicated a185 story of a Hispanic “taco-shop owner” who told him “to get rid of the death tax so I can pass my business from one generation to the next.” 186 A group named the Disabled Americans for Death Tax Repeal inserted an anti-estate tax advertisement in major newspapers. One opponent of the estate187 tax asserted that there were over two million disabled “family members of millionaires” who required their inheritances to counteract increasing medical expenses. Patricia Soldano, an anti-estate tax advocate and an original member188 of W omen Im pacting Public Policy (W IPP), warned women that many of them would be saddled with the weight of estate tax preparation, as the majority of wives live longer than their husbands. W IPP has come out against the estate189 tax and now circulates “estate tax horror stories” involving women.190 180. Id. at 3-4. 181. Matthews, supra note 5, at 691. 182. Id. at 691-92. 183. Id. at 681-86. 184. See, e.g., id. at 681-82; FAGAN, supra note 134, at 6. Patrick Fagan, Ph.D., an opponent of the estate tax, has cited Black Entertainment Television as a company that “will not survive its founder’s death under current [estate] tax law.” Id. Mr. Fagan goes on to report that “The Chicago Daily Defender, the oldest black-owned daily newspaper in the United States, was already forced into bankruptcy by the death tax in 2003.” Id. 185. Deroy Murdock, How Death Tax Shafts Black Americans, HUM. EVENTS (July 6, 2006), http://www.humanevents.com/article.php?id=15927. 186. Rosie Hunter & Chuck Collins, “Death Tax” Deception: Who's Behind the Movement to Repeal the Nation's Only Tax on Inherited Wealth?, DOLLARS & SENSE, http://www. dollarsandsense.org/archives/2003/0103hunter.html (last visited Feb. 14, 2011). 187. Matthews, supra note 5, at 682-83. The text stated, “In order to live a full life, these [disabled] Americans may require medical help, nursing and living assistance far beyond that which is covered by medical insurance. Warren Buffet, Bill Gates, Sr. and George Soros believe that these people should be denied full financial help from their parents.” Hunter & Collins, supra note 186. 188. Matthews, supra note 5, at 683; Hunter & Collins, supra note 186. 189. See Matthews, supra note 5, at 684. 190. Id. 174 INDIANA LAW REVIEW [Vol. 45:159 6. The M orality and Double Taxation of the Estate Tax.— Estate tax opponents argue, “Death [s]hould [n]ot [b]e a [t]axable [e]vent.” Naming the191 estate tax the “death tax” solidifies this point. Opponents also say that the192 estate tax results in double taxation. President Bush said the estate tax should193 be repealed “because people shouldn't be taxed twice on their assets.” Oprah194 W infrey expressed a similar sentiment on her show. Robert Johnson, the195 creator of Black Entertainment Television, and others put an advertisement in well-known newspapers stating, “[T]he ‘estate tax is unfair double taxation since taxpayers are taxed twice— once when the money is earned and again when you die.’”196 B. Arguments in Support of the Estate Tax 1. The Revenue of the Estate Tax and the Cost of Repeal.— Supporters of the estate tax argue that it raises an important amount of revenue. In 2008 the197 estate tax generated around $29 billion. Professor M ichael Graetz argues that198 this amount can roughly cover three-quarters of the Department of Homeland Security’s costs. Professor D aniel M atthews has said the revenue of the estate199 and gift tax combined “is more than the government currently spends on education.”200 Supporters contend that repeal of the estate tax is economically reckless, saying it will greatly increase future deficits. One report supporting the estate201 191. Mombrun, supra note 6, at 77; see also Phil Kerpen, Bury This Death-Tax Compromise: Estate-Tax Repeal Advocates Need to Liven Up the Battle, NAT. REV. ONLINE (July 6, 2006), http://www.nationalreview.com/articles/218142/bury-death-tax-compromise/phil-kerpen (stating, “The death tax is first and foremost a moral issue. Americans do not believe that death should be a taxable event.”); Bloomberg News, Buffet Says No Estate Tax Would be a Gift to the Rich, N.Y. TIMES, Nov. 15, 2007, http://www.nytimes.com/2007/11/15/business/15buffett.html (quoting Senator Charles Grassley of Iowa as saying, “[D]eath should not be a taxable event.”). 192. See Mombrun, supra note 6, at 77. 193. See, e.g., Carl Hulse, Fate of Estate Tax Imperils Obama’s Ambitions, N.Y. TIMES, Apr. 11, 2009, http://www.nytimes.com/2009/04/12/us/politics/12hill.html (stating, “Republicans and other critics consider the estate tax to be fundamentally unfair, saying it represents double taxation since those who accumulated the assets had already paid taxes throughout their lifetime.”). 194. Matthews, supra note 5, at 704 (citation omitted). 195. See id. 196. Id. (quoting MICHAEL J. GRAETZ & IAN SHAPIRO, DEATH BY A THOUSAND CUTS: THE FIGHT OVER TAXING INHERITED WEALTH 174 (2005)). 197. See, e.g., Matthews, supra note 5, at 696-97; Graetz, supra note 159. 198. Graetz, supra note 159. 199. Id. 200. Matthews, supra note 5, at 696. It should be noted, however, that Professor Matthews’s article is somewhat dated, as it was published in 2006. 201. See The Estate Tax: Myths and Realities, CTR. ON BUDGET & POLICY PRIORITIES, 1 (Feb. 23, 2009), available at http://www.cbpp.org/files/estatetaxmyths.pdf [hereinafter Myths and 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 175 tax shows permanent repeal of the tax “would cost almost $1.3 trillion” during only the first decade of its absence. The number is broken down into roughly202 $1 trillion in vanished revenue “and $277 billion in increased interest payments on the national debt.” Interest payments are included because repeal costs203 would likely be supported by borrowing more money instead of enlarged taxes or budget balancing. Supporters also say abolishing the estate tax will decrease204 “income and gift tax revenue.” Specifically, “[T]he Joint Tax Committee205 expects repeal of the estate tax to reduce capital gains revenue by increasing the ‘lock-in effect,’ whereby people choose to hold appreciated assets until they die rather than to sell the assets while they are alive and pay the capital gains tax.”206 2. The Estate Tax and Investment and Savings.— Supporters typically take issue with the argument that the estate tax decreases private savings and that repeal would increase private savings. The Congressional Research Service has207 said that “virtually no empirical evidence about the effect of estate and gift taxes [on saving behavior] exists.” Supporters disagree with opponents’ use of208 “dubious assumptions” when making their arguments about the estate tax and savings. Supporters highlight the fact that there are many unknowns about the209 estate tax and savings. T he argument is estate tax repeal may incentivize one210 person to save, but another to spend. For example, assume a person only211 wanted to leave his heirs a specific inheritance. Here, “[H]e would save less212 if the estate tax were repealed, because he could provide the target inheritance without accumulating as much wealth (since no tax would have to be paid on the estate).” Supporters also claim estate tax repeal may give heirs money to save,213 but it may also incentivize them to spend. If an heir inherits a large sum of214 money, he may feel that he has more time and “less need to save for the future,” thus increasing his spending now. 215 Realities]. 202. Id. 203. Id. 204. Chye-Ching Huang, The High Cost of Estate Tax Repeal, CTR. ON BUDGET & POLICY PRIORITIES, 2 (Jan. 28, 2009), available at http://www.cbpp.org/files/6-5-06tax.pdf. 205. Id. (emphasis omitted). 206. Id. 207. See, e.g., Aviva Aron-Dine, Estate Tax Repeal Would Decrease National Saving: Long- Run Impact on Economy Negligible and Possibly Negative, CTR. ON BUDGET & POLICY PRIORITIES, 1 (June 8, 2006), available at http://www.cbpp.org/files/6-8-06tax.pdf; Myths and Realities, supra note 201, at 4-5. 208. Aron-Dine, supra note 207, at 2 (citation omitted). 209. Id. at 1. 210. See, e.g., id. at 2. 211. See id. 212. Id. 213. Id. 214. Id. 215. Id. 176 INDIANA LAW REVIEW [Vol. 45:159 3. The Estate Tax and Small Businesses.— Supporters of the estate tax argue the estate tax does not actually hurt a substantial amount of farms and small businesses. Around one point three percent of estates subjected to the estate tax216 “are small business or farm estates.” 217 One fact estate tax supporters cite is that the American Farm Bureau Federation indicated in 2001 it could name not one situation where the estate tax forced a farm to liquidate. The year is significant here, because it “was before the estate218 tax exemption level was more than tripled and the top rate was reduced.” 219 Professor Neil Harl, an economist, conducted an exhaustive search and said he never discovered a situation where the estate tax drove a farm to liquidate.220 The IRS has published data showing “that most estates do not have liquidity problems.” The study demonstrated, “[L]iquid assets are more than eight times221 greater in value than illiquid business and farm assets in taxable estates.” A222 Congressional Budget O ffice (CBO) study using numbers for 2009 showed only a small number of farm estates would have to sell some of the farm to cover the estate tax. M oreover, the CBO clarified that it might have overvalued these223 liquidity limitations “because it was unable to include certain assets held in trusts (such as life insurance trusts) in calculating the liquid assets available to help pay the tax.” 224 4. The Estate Tax and Charitable Contributions.— Supporters of the estate tax say charitable contributions will considerably diminish if the estate tax is repealed. The basis for this claim is the estate tax induces people to donate to225 216. See, e.g., Matthews, supra note 5, at 674-81; Myths and Realities, supra note 201, at 2-3 (asserting, “The number of small, family-owned farms and businesses that owe any estate tax at all is tiny, and virtually no such farms and businesses have to be liquidated to pay the tax.”). 217. Myths and Realities, supra note 201, at 2-3. 218. See Gillian Brunet & Chye-Ching Huang, Unlimited Estate Tax Exemption For Farm Estates Is Unnecessary and Likely Harmful, CTR. ON BUDGET & POLICY PRIORITIES, 2 (June 29, 2010), available at http://www.cbpp.org/files/6-29-10tax.pdf; see also Chye-Ching Huang, Impact of Estate Tax on Small Businesses and Farms is Minimal: Almost No Small Business and Farm Estates Owe the Tax; Those That Do Only Owe Modest Amounts, CTR. ON BUDGET & POLICY PRIORITIES, 3 (Feb. 23, 2009), available at http://www.cbpp.org/files/2-23-09tax.pdf; David Cay Johnston, Talk of Lost Farms Reflects Muddle of Estate Tax Debate, N.Y. TIMES, Apr. 8, 2001, http://www.nytimes.com/2001/04/08/us/talk-of-lost-farms-reflects-muddle-of-estate-tax- debate.html. It does seem, though, that American Farm Bureau did present one case, as apparently a widow “had to mortgage a California grape vineyard she inherited from her husband to pay taxes on his estate.” Matthews, supra note 5, at 677-78. This event, however, took place before the “unlimited marital exclusion,” which Congress introduced in 1981. Id. at 678. 219. Brunet & Huang, supra note 218, at 2. 220. See Matthews, supra note 5, at 678. 221. Id. at 676. 222. Id. at. 676-77. 223. See Brunet & Huang, supra note 218, at 2. 224. Id. at 2-3. 225. See, e.g., Matthews, supra note 5, at 698-700; Aviva Aron-Dine, Estate Tax Repeal—or 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 177 charitable organizations “during life and at death.” This is because these226 contributions shrink the amount of a person’s estate, thus decreasing the total estate tax. One-sixth of decedents who paid the estate tax in 2001 had227 charitable contributions. These charitable contributions are an enormous228 am ount, clustered amongst the most affluent Americans. For example, 301229 decedents, possessing estates of at least $20 million, donated “$6.8 billion to charity” in 2001. A 2004 CBO report that is cited to support the estate tax230 showed if “the estate tax [had] been repealed in 2000” then charitable donations would have dropped by $13 billion up to $25 billion. The C BO also231 “concluded that repealing the estate tax would reduce charitable bequests by sixteen to twenty-eight percent and charitable giving during life by six percent to eleven percent.” Another study has had “charitable contributions” decreasing232 by as much as “twenty-four to forty-four percent” without the estate tax. 233 5. The Voluntary Nature of the Estate Tax.— Supporters of the estate tax rebut the claims of opponents and say that the tax is not voluntary. Essentially,234 they argue the estate tax is not easily avoided and that it can only be wholly avoided by (1) leaving “one’s entire estate to one’s surviving spouse”; (2) donating to charity “one’s entire estate”; and (3) spending “one’s wealth during one’s lifetime.” A 2009 article by Professors Paul Caron and James Repetti235 presents evidence to demonstrate that the estate tax is a considerable weight to wealthy Americans. The article concludes “that the estate tax is clearly not236 voluntary today, unless one wishes to actually reduce the real value of assets transferred to heirs.” 237 6. The Estate Tax and an Obligation “Owed to the G overnment.” —238 Supporters of the estate tax say the wealthiest Americans owe something to a Slashing the Estate Tax Rate—Would Substantially Reduce Charitable Giving, CTR. ON BUDGET & POLICY PRIORITIES, 1 (June 7, 2006), available at http://www.cbpp.org/files/6-7-06tax.pdf; JON M. BAKIJA & WILLIAM G. GALE, EFFECTS OF ESTATE TAX REFORM ON CHARITABLE GIVING, URBAN-BROOKINGS TAX POLICY CTR. 1 (2003), available at http://www.taxpolicycenter.org/ UploadedPDF/310810_TaxPolicy_6.pdf. 226. Matthews, supra note 5, at 698 (emphasis added). 227. Id. 228. BAKIJA & GALE, supra note 225, at 1-2. 229. See id. at 2 (claiming, “[C]haritable bequests are heavily concentrated among the wealthiest estates.”). 230. Id. 231. Matthews, supra note 5, at 698. 232. Id. 233. Id. 234. See, e.g., id. at 702-03. 235. Id. at 703. 236. Paul L. Caron & James R. Repetti, The Estate Tax Non-Gap: Why Repeal a “Voluntary” Tax?, 20 STAN. L. & POL’Y REV. 153, 154 (2009). 237. Id. at 169. 238. Mombrun, supra note 6, at 89. 178 INDIANA LAW REVIEW [Vol. 45:159 government that enabled them to be so prosperous. Basically, the argument is239 that the wealthy receive a substantial amount of benefits from the government. 240 Supporters say the wealthy even depend on and receive more security and benefits from “the government’s protection of individual property rights” than the less affluent. Thus, according to at least some supporters of the estate tax, “It241 seems fair that people who have prospered the most in this society help to preserve it for future generations through tax revenues that derive from their estates.” Bill Gates, Sr. has summed up this argument nicely:242 The reason the estate tax makes so much sense is that there is a direct relationship between the net worth people have when they pass on and where they live. The government that protects their business activities, the traditions that enable them to rely on certain things happening, that’s what creates capital and enables net worth to increase.243 7. The Compliance C osts of the Estate Tax.— Proponents of the estate tax refute the claim that compliance costs of the tax are excessively high, diminishing any positive aspect of the tax. They claim that compliance costs of the estate244 tax are no more burdening than other taxes. Som e studies supporting this245 position show “estate tax compliance” and administrative costs are around “[seven] percent of estate tax revenues.” By comparison, “administrative and246 compliance costs equal about 14.5 percent of the revenue raised by the individual and corporate income taxes . . . .” Estate tax opponents often cite a piece247 economist Henry Aaron co-wrote in 1992 claiming the tax has substantial compliance costs. M r. Aaron, however, now disassociates himself from this248 work and has come out “against estate tax repeal.” Finally, supporters maintain249 that sometimes estate tax compliance costs are exaggerated by incorporating costs in the calculation, such as preparing a will and other documents, that would be 239. See, e.g., id. at 89-91; Myths and Realities, supra note 201, at 5. 240. See Myths and Realities, supra note 201, at 5. These benefits include “defense, education, health care, scientific research, environmental protection, and infrastructure.” Id. 241. Id. 242. Id. 243. Id. (citation omitted). 244. See, e.g., Matthews, supra note 5, at 691-94; Myths and Realities, supra note 201, at 6; see also Joel Friedman & Ruth Carlitz, Cost of Estate Tax Compliance Does Not Approach the Total Level of Estate Tax Revenue, CTR. ON BUDGET & POLICY PRIORITIES, 1 (June 9, 2006), available at http://www.cbpp.org/files/6-14-05tax.pdf (asserting, “[T]here is no credible evidence that compliance costs — including the IRS’ costs of administering the estate tax and the cost taxpayers bear in terms of estate planning and administering an estate when a person dies — carry a cost anywhere near the estate tax revenue yield.”). 245. See Myths and Realities, supra note 201, at 6. 246. Id. 247. Id. 248. See Matthews, supra note 5, at 692-93. 249. Id. at 693-94. 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 179 included in estate planning even if the estate tax did not exist.250 8. The Estate Tax and Enormous Wealth.— Professor M ombrun has said that “it may be un-American to transfer . . . [large] fortune[s] from generation to generation and choke off opportunities for others.” These types of transfers251 could result in wealth concentration, possibly creating “poor economic performance in the long run.” President Theodore Roosevelt supported the252 estate tax by saying, “No advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of the enormous fortunes which would be affected by such a[n estate] tax . . . .” Finally, supporters note repeal of the estate tax would convey roughly253 $1 trillion to the most affluent Americans over the next decade, further increasing the wealth disparity in the country.254 III. BALANCING OF THE A RGUM ENTS W eighing the arguments of whether the estate tax must be repealed or retained proves difficult. Both sides make convincing claims. The estate tax does seem to negatively affect some small business owners and farmers. If they do255 not actually pay the tax, they surely contemplate paying it, forcing them to take actions and make decisions they otherwise would not desire. However, as256 estate tax proponents declare and demonstrate, the num ber of businesses and farms that pay the tax is rather little. 257 On many claims the sides entirely disagree. Opponents maintain that the estate tax readily incentivizes people to spend money. Proponents argue that258 the incentives of the estate tax are much more nuanced. Opponents assert that259 the estate tax is voluntary. Proponents retort that it is actually quite260 involuntary. 261 On some aspects of the estate tax, the two sides present competing evidence. For example, opponents of the estate tax display evidence showing the compliance costs of the tax make it ineffective. Supporters of the tax respond262 with their own evidence demonstrating the compliance costs are analogous to 250. See Myths and Realities, supra note 201, at 6. 251. Mombrun, supra note 6, at 91. 252. Id. (citation omitted). 253. Eisenstein, supra note 19, at 229 (citation omitted). 254. See Mombrun, supra note 6, at 92. 255. See supra notes 134-57 and accompanying text. 256. See supra notes 150-56 and accompanying text. 257. See, e.g., Myths and Realities, supra note 201, at 2-3. 258. See supra notes 162-63 and accompanying text. 259. See supra notes 207-15 and accompanying text. 260. See, e.g., Matthews, supra note 5, at 702-03. 261. See, e.g., id. 262. See supra notes 176-80 and accompanying text. 180 INDIANA LAW REVIEW [Vol. 45:159 other taxes. 263 Therefore, on the whole, this is a close issue, with valid arguments presented by both groups. If the estate tax is repealed it might increase savings and investment, and small business owners who pay the tax would get relief from264 hardships the tax may impose. Yet, scrapping the estate tax will likely decrease265 charitable contributions, and retaining it will probably generate upwards of $20266 billion in revenue. However, there is one factor alone that forces a defense of267 the estate tax at this time in the United States. This factor is the national debt. This part of the Note explains the national debt and articulates five reasons why having a large national debt can be labeled a crisis. It then ties the original268 purpose of death-time taxation in the United States (generation of revenue during a national emergency) with the current debt situation. The Note then argues269 that though the estate tax has some adverse consequences, the national debt crisis compels the imposition of the estate tax. In other words, the enormity of the270 national debt balances the debate in favor of estate tax preservation, even though the estate tax does have some negative aspects. 271 A. The National Debt The national debt currently stands at over $14 trillion dollars, equating to around $47,000 per American citizen. In M arch of 2010 the CBO released its272 analysis of President Obama’s budget proposals for fiscal year 2011. The CBO273 concluded, “If the President’s proposals were enacted, the federal government would record deficits of $1.5 trillion in 2010 and $1.3 trillion in 2011.” In fact,274 it is argued that President Obama’s proposed “budget more than doubles the national debt held by the public, adding more to the debt than all previous 263. See supra notes 245-47 and accompanying text. 264. See supra notes 162-63 and accompanying text. 265. See supra notes 134-57 and accompanying text. 266. See supra notes 225-33 and accompanying text. 267. See, e.g., Graetz, supra note 159 (giving some data on estate tax revenue for 2008). 268. The national debt can surely cause more harms than those communicated here. This Note simply mentions some common problems that emanate from a too large national debt. 269. See supra note 64 and accompanying text. 270. For a Wall Street Journal article arguing that the revenue of the estate tax is one of the reasons why the estate tax should be preserved, even though the estate tax has some negative aspects, see Graetz, supra note 159. 271. See, e.g., id. (commenting that the estate tax should be preserved even though it does have some negative aspects). 272. U.S. DEBT CLOCK.ORG, http://www.usdebtclock.org (last visited Oct. 20, 2011) (giving the total national debt figure as well as the national debt per person figure). 273. See CONG. BUDGET OFF., AN ANALYSIS OF THE PRESIDENT’S BUDGETARY PROPOSALS FOR FISCAL YEAR 2011, at 1 (2010), available at http://www.cbo.gov/ftpdocs/112xx/doc11280/03- 24-apb.pdf. 274. Id. at vii. 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 181 presidents— from George W ashington to George W . Bush— combined.”275 There is no argument that the debt is not substantial. Reasonable people do disagree about the necessity of spending (that adds to the national debt) in times of a recession. However, there is little doubt that a276 continuous and sustained massive national debt will lead to economic problems. Some make a claim that a national debt “over roughly [ninety]277 percent of GDP” reduces economic growth. The U nited States is not at that278 point now. Current policies, though, are likely to take the country there by279 decade’s end. This Note now presents the problems of such a large national280 debt in m ore detail, showing fiscal changes should be made in order to deter disaster. This lays the foundation for this Note’s central argument: that the estate tax m ust be retained solely as a device to reduce the national debt or at least thwart the growth of the debt. 1. Economic Growth.— Broadly speaking, a massive federal debt to GDP ratio equates to slower economic growth. Interestingly, this argument holds281 whether the country is an “advanced econom[y]” or an “emerging” economy. 282 As mentioned above, economic growth decelerates when the national debt 275. Michael J. Boskin, Obama’s Radicalism is Killing the Dow: A Financial Crisis is the Worst Time to Change the Foundations of American Capitalism, WALL ST. J., Mar. 6, 2009, at A15, available at http://online.wsj.com/article/SB123629969453946717.html. 276. Some argue that the government must spend money with the onset of a recession. This argument is as follows: “It begins with the idea that an economic shock has left demand persistently and significantly below potential supply. As people stop spending money, businesses pull back production, and the ensuing vicious circle of falling demand and production shrinks the economy. Keynesians believe that government spending can make up this shortfall in private demand.” BRIAN M. RIEDL, THE HERITAGE FOUND., WHY GOVERNMENT SPENDING DOES NOT STIMULATE ECONOMIC GROWTH: ANSWERING THE CRITICS 2 (2010), available at http://s3. amazonaws.com/thf_media/2010/pdf/bg_2354.pdf. However, others generally have the opposite view. See, e.g., id. at 1 (arguing, “The idea that government spending stimulates the economy has a long history of failure” and “[t]he only way to increase economic growth is by increasing productivity and the labor supply.”). 277. See, e.g., CBO Report: Debt Will Rise to 90% of GDP, WASH. TIMES, Mar. 26, 2010, http://www.washingtontimes.com/news/2010/mar/26/cbos-2020-vision-debt-will-rise-to-90-of- gdp/; Mark Whitehouse, Reinhart and Rogoff: Higher Debt May Stunt Economic Growth, WALL ST. J. (Jan. 4, 2010, 3:32 PM), http://blogs.wsj.com/economics/2010/01/04/reinhart-and-rogoff- higher-debt-may-stunt-economic-growth/. 278. Carmen M. Reinhart & Kenneth S. Rogoff, Growth in a Time of Debt, 100 AM. ECON. REV. 573, 573 (2010). 279. See CBO Report: Debt Will Rise to 90% of GDP, supra note 277. 280. See id. 281. See, e.g., Reinhart & Rogoff, supra note 278, at 573 (concluding, “[W]hereas the link between growth and debt seems relatively weak at ‘normal’ debt levels, median growth rates for countries with public debt over roughly [ninety] percent of GDP are about one percent lower than otherwise; average (mean) growth rates are several percent lower.”). 282. Id. 182 INDIANA LAW REVIEW [Vol. 45:159 exceeds “[ninety] percent of GDP.” Thus, “High levels of debt and growth283 don’t go hand in hand.” 284 Slow economic growth can lead to countless problems. For example, in 1980s Latin America and 1990s Japan, “mounting debt led to roughly a decade of stagnant and sub-par growth.” Government revenue typically declines with285 slow economic growth. The United States may generate $50 billion less in286 revenue in 2011 because of slow economic growth. W hen sluggish economic287 growth is coupled with rising prices, stagflation can appear. Stagflation288 happened in the 1970s in the United States, wreaking havoc on American business. In 2005, Alan Greenspan, then Chairman of the Federal Reserve,289 opined, “[R]ising interest rates and a rising federal budget deficit, if left unchecked, ‘would cause the economy to stagnate or worse.’” 290 Generally, there is evidence of deflation when “slow economic growth” combines with “high unemployment” and sinking prices. Deflation (as well as291 inflation) “lead[s] to withering investment environments and tough markets when it comes to finding work.” Finally, sluggish economic growth means a lower292 family income. It is estimated, “By 293 2014, the average family’s income will be . . . $1,800 lower because of the slower income growth that results when government competes with the private sector for a limited pool of savings or borrows more from abroad.”294 2. Financial Disaster.— A mounting national debt enhances the possibility of a fiscal disaster. Normally a crisis begins by the government announcing it295 283. Id. 284. Kevin G. Hall, High U.S. Debt Means Slower Growth, History Suggests, MCCLATCHY (Jan. 11, 2010), http://www.mcclatchydc.com/2010/01/11/81969/high-us-debt-means-slower- growth.html. 285. Id. 286. See What the IMF’s Slow-Growth Forecast Means for Bulky U.S. Fiscal Deficit, WASH. EXAMINER, Oct. 7, 2010, http://www.washingtonexaminer.com/opinion/blogs/examiner-opinion- zone/what-the-imfs-slow-growth-forecast-means-for-bulky-us-fiscal-deficit. 287. See id. 288. See Stagflation, a Powerful Cocktail of Economic Risks, Threatens Spain, UNIVERSIA KNOWLEDGE @ WHARTON (Feb. 6, 2008), http://www.wharton.universia.net/index.cfm?fa= viewArticle&id=1463&language=english. 289. See Paul R. La Monica, A Not-So-Fun ‘Stag’ Party?, CNN MONEY (Apr. 21, 2005, 4:15 PM), http://money.cnn.com/2005/04/21/news/economy/stagflation/index.htm. 290. Id. 291. John Tamny, Inflation vs. Deflation, FORBES.COM (Oct. 19, 2009, 12:00 AM), http://www.forbes.com/2009/10/18/inflation-deflation-dollar-opinions-columnists-john-tamny.html. 292. Id. 293. See THE BROOKINGS INST., RESTORING FISCAL SECURITY: HOW TO BALANCE THE BUDGET I, at 9 (Alice M. Rivlin & Isabel V. Sawhill eds., 2004), available at http://www. brookings.edu/es/research/projects/budget/fiscalsanity/full.pdf. 294. Id. at i. 295. See Economic and Budget Issue Brief: Federal Debt and the Risk of a Fiscal Crisis, 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 183 must borrow a great sum of money. “In such a crisis, investors become296 unwilling to finance all of a government’s borrowing needs unless they are compensated with very high interest rates; as a result, the interest rates on government debt rise suddenly and sharply relative to rates of return on other assets.” This makes borrowing tougher, compelling the government to raise297 taxes and decrease spending, hoping to comfort investors. The government298 may also “renege on the terms of its existing debt” or enlarge the quantity of money, increasing inflation. In effect, there is a possibility of default if the299 national debt becomes too high. G lobal leaders have contemplated this, as the300 Prime M inister of China “publicly questioned the safety of U.S. Treasury debt.”301 Essentially, the U nited States faces the possibility of a having a fiscal crisis similar to Greece in 2009 and 2010. In 2008, Greece “owed its creditors”302 around 110% “of the country’s GDP.” W hen the world-wide recession303 occurred, this percentage grew, increasing the interest rate on Greek bonds by two “percentage points over rates on comparable German bonds.” “Investors’304 confidence” worsened. The interest rates on Greek bonds continued to rise. 305 306 Eventually, the International M onetary Fund and some European countries vowed to loan G reece billions of Euros to help remedy the crisis. The G reek example307 is simply one of many demonstrating the calamitous effect an inflated national debt can have on a country. 308 3. National Security and Sovereignty.— An increasing and massive federal debt can negatively affect the national security and sovereignty of the United States. W ith a national debt, A merica is constrained. Government309 310 CONGR. BUDGET OFF., 4 (July 27, 2010), available at http://www.cbo.gov/ftpdocs/116xx/doc11659/ 07-27_Debt_FiscalCrisis_Brief.pdf [hereinafter Economic and Budget Issue Brief]. 296. Id. 297. Id. 298. Id. 299. Id. 300. See, e.g., Alan J. Auerbach & William G. Gale, Here Comes the Next Fiscal Crisis, L.A. TIMES, July 8, 2009, http://articles.latimes.com/2009/jul/08/opinion/oe-auerbach8. 301. Id. 302. See Economic and Budget Issue Brief, supra note 295, at 6 (discussing the fiscal crisis in Greece). 303. Id. 304. Id. 305. Id. 306. See id. 307. Id. 308. Argentina and Ireland are other countries who have faced disasters at least in part because of an enormous national debt. See id. at 5-6. 309. See, e.g., Clinton: National Debt Holding America Back, FOXNEWS.COM (Sept. 8, 2010), http://www.foxnews.com/politics/2010/09/08/clinton-calls-diplomatic-strategy-best-hope- dangerous-world; Mullen: Debt is Top National Security Threat, CNN U.S. (Aug. 27, 2010), http://articles.cnn.com/2010-08-27/us/debt.security.mullen_1_pentagon-budget-national-debt- 184 INDIANA LAW REVIEW [Vol. 45:159 borrowing “from foreign countries,” at least in part to finance spending and the national debt, “weakens America’s standing and its freedom to act.” As311 Secretary of State Hillary Clinton has said, the national debt has “eroded America’s ability to ‘chart our own destiny.’” It slowly chips away at312 America’s sovereignty and freedom. W hen one person is indebted to another,313 he loses some of his personal freedom and choices. He becomes obligated to another. He may no longer be able to afford to purchase those fifty acres of farmland that he has always dreamed about. That new truck he wanted becomes unattainable. He m ust restrict his budget, cutting down on spending and only purchasing that which is absolutely necessary. The interest alone sometimes becomes unbearable. A country is no different. W hen the United States borrows an extensive amount of money to finance its national debt, it becomes “beholden to interests outside . . . [its] borders.” 314 T he national debt is causing a noteworthy amount of economic leverage to be lost. America’s power decreases and China’s power increases. This is315 316 because the Chinese fund much of the U nited States’ debt. China sells a large317 amount of “manufactured goods” to the United States and then loans the amassed income generated “back to the U. S.” All of these effects of the national debt318 show that “[t]he American model is being undermined before the rest of the world.” 319 4. Private Investment.— An enormous national debt can eventually “crowd out private investment.” Generally, “increased government borrowing tends320 to crowd out private investment in productive capital, because the portion of people’s savings used to buy government securities is not available to fund such investment.” The effect is poorer production and diminished capital. A321 322 decrease in capital translates into less capital inheritance “to future michael-mullen?_s=PM:US (quoting Joint Chiefs of Staff Chairman Admiral Michael Mullen as saying, “The most significant threat to our national security is our debt . . . .”); Rep. Ron Paul, Government Debt—The Greatest Threat to National Security, LEWROCKWELL.COM (Oct. 26, 2004), http://www.lewrockwell.com/paul/paul213.html. 310. See Clinton: National Debt Holding America Back, supra note 309. 311. Capital Journal, Deficit Balloons Into National-Security Threat, WALL ST. J., Feb. 2, 2010, http://online.wsj.com/article/SB10001424052748703422904575039173633482894.html. 312. Clinton: National Debt Holding America Back, supra note 309. 313. See Paul, supra note 309 (stating, “Debt destroys U.S. sovereignty, because the American economy now depends on the actions of foreign governments.”). 314. Id. 315. See Clinton: National Debt Holding America Back, supra note 309. 316. See Capital Journal, supra note 311. 317. See id. 318. Id. 319. Id. 320. Economic and Budget Issue Brief, supra note 295, at 3. 321. Id. 322. Id. 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 185 generations.” 323 5. M orality.— It may be immoral to burden future generations with a massive national debt created and sustained by the current generation. President324 Thomas Jefferson nicely m ade this case. He said, “[T]he principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.” President Jefferson also stated, “[W ]e shall all325 consider ourselves unauthorized to saddle posterity with our debts, and morally bound to pay them ourselves; and consequently within what may be deemed the period of a generation, or the life of the majority.” 326 B. Retaining the Estate Tax Because of the National Debt Throughout a significant part of American history Congress used the death- time taxes only temporarily. These taxes popped up during national crises and327 disappeared once the crises relented. Their goal was to generate revenue to328 finance America’s response to the emergency. Today, if the national debt is329 not already a crisis, it soon will be. The above analysis certainly indicates that330 a monstrous and unsustainable national debt is a severe problem. The United 323. MARC LABONTE, CONG. RESEARCH SERV., THE NATIONAL DEBT: WHO BEARS ITS BURDEN? 8 (2005), available at http://old.concordcoalition.org/doc/crs-debt-burden.pdf. 324. See, e.g., Dems Rally Against Social Security Plan, CNN.COM (Feb. 3, 2005, 5:54 PM), http://www.cnn.com/2005/ALLPOLITICS/02/03/dems.ss/ (quoting letter from forty-four U.S. Senators to President George W. Bush (Feb. 3, 2005)) (urging the President to not increase the national debt to pay for his social security plan and saying, “[S]hifting financial obligations of this magnitude to future generations is immoral, unacceptable, and unsustainable.”). 325. Private Banks (Quotation), THOMAS JEFFERSON MONTICELLO, http://wiki.monticello.org/ mediawiki/index.php/Private_Banks_(Quotation)#_ref-3 (last visited Jan. 3, 2011) (citation omitted). 326. Pete V. Domenici, Fighting the Good Fight: Washington’s Quest for a Balanced Budget, 16 ST. LOUIS U. PUB. L. REV. 17, 25 (1996) (citation omitted). 327. See supra note 64 and accompanying text. 328. See supra note 64 and accompanying text. 329. See supra note 64 and accompanying text. 330. See, e.g., Growing National Debt May Be Next Economic Crisis, FOXNEWS.COM (July 3, 2009), http://www.foxnews.com/politics/2009/07/03/growing-national-debt-economic-crisis/ (quoting Peter Orszag, White House Budget Director, as saying, “We are on an utterly unsustainable fiscal course.”); Gary D. Halbert, CBO: U.S. Debt Crisis on the Horizon, INVESTORSINSIGHT.COM (Aug. 10, 2010, 6:05 PM), http://www.investorsinsight.com/blogs/ forecasts_trends/archive/2010/08/10/cbo-u-s-debt-crisis-on-the-horizon.aspx (discussing a CBO report and saying, the CBO “warns that we will face financial calamity if we do not get our massive budget deficits under control”); Lieberman Addresses National Debt Crisis, JOE LIEBERMAN UNITED STATES SENATOR FOR CONNECTICUT (Nov. 10, 2009), http://lieberman.senate.gov/ index.cfm/news-events/speeches-op-eds/2009/11/lieberman-addresses-national-debt-crisis (quoting Senator Lieberman as saying, “Now more than ever, we must come to terms with the potentially crippling amount of debt on our nation’s books.”). 186 INDIANA LAW REVIEW [Vol. 45:159 States is approaching a perilous size of debt, and something must be done to331 better the situation. One possible step is retaining the estate tax. 332 333 The estate tax is far from a perfect tax, if there is such a concept. It pops334 its head up during times of grief. It frightens small business owners and farmers as they contemplate paying it. Yet, it raises revenue, and repealing it will335 336 roughly cost upwards of $1 trillion over a decade. The fact the estate tax has337 some negative aspects should not automatically condemn it. Instead, the negative aspects must be examined with a view toward the overall goal of the tax, while considering the net effect on the country.338 President George W ashington’s words quoted at the beginning of this Note are pertinent here. “The national debt level is one of the most important public339 policy issues [facing the United States].” A large national debt causes340 substantial economic problems, stifling growth and decreasing private investment. It hinders national security and diminishes dom estic341 sovereignty. Continuing on this path of debt will undoubtedly change America342 now, but also in the future. 343 331. See, e.g., Timothy R. Homan, Greenspan Sees Threat U.S. Congress Will Hamper Fed (Update2), BLOOMBERG (Sept. 16, 2009, 9:26 AM), http://www.bloomberg.com/apps/news?pid= newsarchive&sid=ajTHW2dMQ3fM (citing Alan Greenspan, as advising, “[T]he U.S. must rein in its ‘very dangerous’ level of [national] debt . . . .”). 332. See, e.g., Skyrocketing National Debt is Dangerous, JOHN THUNE UNITED STATES SENATOR—SOUTH DAKOTA (Aug. 28, 2009), http://thune.senate.gov/public/index.cfm/op- eds?ID=c77be52d-3cc1-4287-a180-f4b283b71925 (quoting Senator Thune as saying, “We cannot simply continue to increase the dangerous level of debt by passing it along to future generations thinking that it will magically resolve itself.”). 333. See Frederick, supra note 64, at 214 (saying, “[T]he most effective way to use the estate tax may be as a mechanism to raise revenue during financial crises.”); Graetz, supra note 159 (arguing, “[W]e need the estate tax, with our nation’s financial situation more precarious than it has been in half a century . . . .”). 334. See id. (saying, “[T]he estate tax is not ideal”). 335. See, e.g., DUBAY, supra note 134, at 8 (saying if the estate tax was repealed, “family businesses” would be “winners” as they “would no longer have to worry about their future survival”) (emphasis added); Weber, supra note 145, at 118 (mentioning the estate tax and the “anxiety” it gives “small business owners”). 336. See Graetz, supra note 159. 337. See Myths and Realities, supra note 201, at 1 (mentioning the cost of repeal). 338. Professor Graetz essentially does this. See Graetz, supra note 159 (saying, “Even with its shortcomings, we need the estate tax . . . .”). 339. See supra note 1 and accompanying text. 340. Troy Adkins, What the National Debt Means to You, YAHOO! FINANCE (Apr. 22, 2010, 4:50 PM), http://finance.yahoo.com/news/What-The-National-Debt-Means-investopedia- 4099066083.html?x=0. 341. See supra notes 281-84, 320-23 and accompanying text. 342. See supra notes 309-19 and accompanying text. 343. See, e.g., LABONTE, supra note 323, at 8. 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 187 Examining the national debt situation in this light makes preserving the estate tax much more attractive. To allow this source of revenue to disappear without344 it decreasing the national debt or at least hindering the growth of the national debt would most definitely be unwise. The estate tax revenue should be used345 exclusively as a tool to help fix the national debt situation. Therefore, the estate346 tax currently is justified solely by the fact that it raises revenue which could be used to decrease the national debt. No tax, however, is attractive to all, and this is understandable. Relatively few, though, in actuality pay the estate tax. Senator Bernie Sanders from347 V ermont, when debating the recent estate tax law, said the following about the estate tax: “Ninety-nine point seven percent of American families will not pay one nickel in an estate tax . . . . This is not a tax on the rich. This is a tax on the very, very, very rich.” Nevertheless, it is unfortunate that some have to suffer348 because of taxes. President W ashington recognized this. But he also understood in order to pay debts, there must be revenue; and to have revenue requires taxes. 349 It is important then to see the estate tax as a tool to help remedy the grim fiscal and economic condition of the United States. Doing this leads to the350 conclusion that the estate tax should be preserved now, and most likely when the current estate tax law expires in two years. Like Secretary M ellon did during351 the Great Depression, the negative features of the estate tax ought to be352 temporarily overlooked because of the giant national debt. The calamitous353 344. See, e.g., Myths and Realities, supra note 201, at 2 (saying, “Given the nation’s serious long-term fiscal problems, repealing or further weakening the estate tax would not be fiscally responsible.”). 345. See, e.g., id. at 1 (saying, “Repealing the estate tax, or weakening it . . . would add trillions of dollars to future deficits and be fiscally irresponsible.”). 346. This Note in no way intends to argue preservation of the estate tax would fix the debt problem. Keeping the estate tax is only a small part of an overall and massive plan that is needed to remedy the dire debt situation. 347. See Sullivan, supra note 17 (discussing how not many individuals will pay the new estate tax). 348. David M. Herszenhorn & Carl Hulse, Estate Tax Cutoff Draws Special Fire in Congress, N.Y. TIMES, Dec. 10, 2010, at A14, available at http://www.nytimes.com/2010/12/11/us/politics/ 11cong.html?_r=2&ref=politics. 349. See supra note 1 and accompanying text. 350. See, e.g., supra note 333. 351. The main reason why the estate tax almost certainly will need to be kept past the two year timeline is because of the completely dire long-term national debt situation. See generally NICOLA MOORE, THE HERITAGE FOUND., U.S. LONG-TERM DEBT SITUATION IS ONE OF THE WORLD’S WORST (2010), available at http://thf_media.s3.amazonaws.com/2010/pdf/wm2972.pdf. 352. See supra notes 115-16 and accompanying text. 353. Again, Professor Graetz makes a somewhat similar argument in that he generally says that the United States needs the estate tax, even though the current estate tax does have some negative aspects. See Graetz, supra note 159. 188 INDIANA LAW REVIEW [Vol. 45:159 state of the national debt demands this. 354 IV. R EFRAM ING THE ESTATE TAX D EBATE In 2010, Gallup and USA Today conducted a public opinion poll asking about “[p]erceived [t]hreats” towards the United States. Forty percent of those355 questioned deemed the national debt an “[e]xtremely serious” threat, with another thirty-nine percent calling the national debt a “[v]ery serious” threat. By356 comparison, only twenty-six percent named maintaining soldiers in Afghanistan/Iraq an “[e]xtremely serious” threat, while forty percent titled this a “[v]ery serious” threat. These numbers are not unique to this one poll. In357 358 a Fox N ews Poll, seventy-eight percent said, “[T]he national debt is so large it is hurting the future of the country . . . .” This number involved “majorities of359 Democrats (64 percent), Republicans (92 percent) and independents (85 percent).” Further, seventy-four percent replied they “worry about ‘leaving the360 country worse off for future generations.’” A nd, though double the amount of361 those questioned in a Bloomberg National Poll said they believe unemployment is a bigger issue than government debt and spending, the latter category received more than twice as many votes as either healthcare or the W ar in A fghanistan. 362 All of these polls demonstrate Americans are quite troubled by the growing national debt.363 Those supporting the estate tax should use these opinions about the national debt to garner support for the estate tax. In other words, the estate tax issue should be reframed with an eye towards the national debt. Supporters should link the massive and bourgeoning national debt with the estate tax and its revenue, highlighting how the tax revenue should exclusively be used to either reduce the national debt, or offset increased spending. The cost of repeal, perhaps upwards 354. See, e.g., supra notes 344-46 and accompanying text. 355. Lydia Saad, Federal Debt, Terrorism Considered Top Threats to U.S., GALLUP (June 4, 2010), http://www.gallup.com/poll/139385/federal-debt-terrorism-considered-top-threats.aspx. 356. Id. 357. Id. 358. See, e.g., Dana Blanton, Fox News Poll: National Debt Hurting the Country, FOXNEWS.COM (Oct. 1, 2009), http://www.foxnews.com/story/0,2933,558700,00.html. 359. Id. 360. Id. 361. Id. 362. See Problems and Priorities, POLLINGREPORT.COM, http://www.pollingreport.com/ prioriti.htm (last visited Jan. 5, 2011). 363. See, e.g., Bruce Bartlett, How Much Does the National Debt Matter?, FORBES.COM (Mar. 5, 2010, 12:01 AM), http://www.forbes.com/2010/03/04/consumer-debt-deficit-budget-opinions- columnists-bruce-bartlett.html (contending, “It’s a rare public opinion poll these days that doesn’t show the national debt near the top of Americans’ concerns. Huge budget deficits as far as the eye can see are a source of great worry . . . .”). 2011] THE FEDERAL ESTATE TAX AND THE NATIONAL DEBT 189 of $1 trillion, should be emphasized. In the words of Professor Graetz, “W e364 [n]eed the [r]evenue.”365 This reframing is pertinent, considering a recent public opinion poll. A Gallup and USA Today poll question from November 2010 asked Americans to comment on whether certain accomplishments were crucial for the “lame duck” Congress to achieve. Fifty-six percent said, “[p]assing legislation that would366 keep the estate tax from increasing significantly next year” was “[v]ery im portant.” Twenty-six percent of those surveyed believed this action to be367 “[s]omewhat important.” Only seventeen percent said this accomplishment368 was “[n]ot too/[n]ot at all important.” Further, a survey conducted by the Tax369 Foundation in part asked about the fairness of different taxes. Those surveyed370 deem ed the estate tax as the most unfair federal tax. Generally, “Americans371 don’t like the estate tax.” 372 Therefore, in order to have broad public support, it would likely be effective for proponents of the estate tax to tie estate tax revenue and the national debt together. Proponents might try communicating the goal of the estate tax proposed in this N ote (to reduce the national debt and/or offset spending increases). If this is done, estate tax support may quite possibly increase. One survey has indicated, “[G]iven a set [of] limited choices for balancing the national budget, [Americans] would prefer to see taxes increased for the wealthy.” This fact bodes quite well373 for estate tax proponents, as generally only the wealthiest Americans pay the estate tax. 374 C ONCLUSION The United States is on the brink of a crisis, if not already mired in one. 375 364. See Myths and Realities, supra note 201, at 1. 365. See Graetz, supra note 159. 366. Jeffrey M. Jones, In U.S., Tax Issues Rank as Top Priority for Lame-Duck Congress, GALLUP (Nov. 23, 2010), http://www.gallup.com/poll/144899/tax-issues-rank-top-priority-lame- duck-congress.aspx. 367. Id. 368. Id. 369. Id. 370. See Poll: Tax Code Complex, Federal Income Taxes “Too High,” TAX FOUND. (Mar. 22, 2007), http://www.taxfoundation.org/news/show/2281.html. 371. Id. 372. Karlyn Bowman, The Estate Tax Lives? Dies?, THE AMERICAN (Dec. 1, 2010, 9:52 AM), http://blog.american.com/?p=23258. 373. Stephanie Condon, Poll: To Reduce Deficit, Most Americans Say Tax the Rich More, CBS NEWS (Jan. 3, 2011, 3:08 PM), http://www.cbsnews.com/8301-503544_162-20027036- 503544.html. 374. See, e.g., Herszenhorn & Hulse, supra note 348 (quoting Senator Bernie Sanders as generally saying only the most affluent Americans pay the estate tax). 375. See supra notes 330-31 and accompanying text. 190 INDIANA LAW REVIEW [Vol. 45:159 The escalating national debt will likely cause a myriad of problems. Economic376 growth is likely to slow, and private investment will likely decrease. The377 378 national debt exposes the United States to the possibility of a fiscal catastrophe,379 and it negatively affects national security and sovereignty. Our country’s380 leaders should take steps to stave off disaster. One initial action should be381 retaining the estate tax. Using the estate tax during a national crisis to generate revenue is consistent with much of historical death-tim e taxation in the United States. 382 Therefore, the estate tax should be retained, at least for the foreseeable future, and be used solely to reduce the national debt or offset increased spending. This policy likely would help avert the harmful effects of a monstrous federal debt. Estate tax preservation will not by itself fix the national debt problem. Nevertheless, it is one step in the right direction and deserves to be considered when leaders debate how to fix America’s debt crisis. 376. See supra notes 281-326 and accompanying text. 377. See supra notes 281-94 and accompanying text. 378. See supra notes 320-23 and accompanying text. 379. See supra notes 295-308 and accompanying text. 380. See supra notes 309-19 and accompanying text. 381. See supra note 332 and accompanying text. 382. See supra notes 327-33 and accompanying text.