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In
the movie Wall Street, Bud Fox (played by
Charlie Sheen) says the following as he prepares for
his first meeting with Gordon Gekko (played by
Michael Douglas): "In life, everything comes
down to a few moments. This is one of them."
The inexplicable votes of 10 Democratic senators
have put a Democratic governor and the state
Democratic party leadership on the hot seat. By
falling in line with an unprecedented GOP plan to
repeal Virginia's estate tax -- a plan which, based
on the latest state documents, would have given 13
of the wealthiest families an average tax break of
$2.3 million -- the senators have created one of
those defining moments that will test the political
character of our governor and their party.
But as they say in business, anticipation is the key
to success. Everyone in Richmond knew this moment of
truth was coming. So what is now occurring should
not take anyone by surprise.
These senate Democrats had
indicated, long before the final vote last week,
that they were likely to vote for the Republicans'
plan to eliminate the estate tax on the wealthiest
families in the Commonwealth.
So yes, I can hear the Republicans laughing at
Democrats, as they must be astounded at what has
transpired at the General Assembly.
Virginia Republicans, estate tax lobbyists and their
supporters, have engaged in a clever campaign of
misinformation and disinformation on the issue. They
have diverted attention from the handful of wealthy
families that would benefit from the GOP's plan to
totally eliminate the state's estate tax
Cleverly, the GOP - and now a majority of Senate
Democrats - have "claimed" this repeal was
necessary to save the "family farm" and
"small, non-farm family businesses" from
liquidation upon the death of the founder due to the
need to pay the state's Estate Tax.
Nothing - and I say nothing -- could be further from
the real truth. When you take into consideration all
the exemptions currently in the law and the
exemptions from estate taxation built into the new
federal laws passed last year, less than one in 20
farm families on a national data basis will leave a
taxable estate. Those who do will owe an estate tax
less than $5,000 on average. A similar scenario
holds for the typical non-farm family business: The
average estate tax bill is a fraction of the made-up
"liquidation" scare scenarios of the
Republicans.
In fact: Under the federal law passed last year, no
Virginia family with a taxable estate valued at $1.5
million -- after all the allowable deductions
are taken -- will owe any federal or Virginia estate
tax starting on January 1, 2004, the effective date
for the Republican Plan supported by the Democrats.
In other words, they are not helped at all by
this GOP Giveaway.
Let's use 2002 as an example. In that year, only
1,786 families in Virginia filed tax returns saying
they owed any estate tax. A total of 1,388 of them
had a taxable estate $1.5 million or less. Thus, by
2004 - without any change to Virginia's current law
-- these families will no longer be liable for
estate tax. That's right: The GOP Estate tax repeal
legislation supported by 10 Democratic senators does
nothing to really help any of these families,
despite their claims to the contrary.
Thus, only the 398 families with taxable estates in
excess of $1.5 million would be likely to receive
any benefit. Moreover, the GOP assertion that the
number of families in this category will mushroom in
the next few years is absurd.
No doubt you are now asking: Why didn't Gov. Warner
and his administration engage in a forceful and
persistent education campaign to counter the GOP
misinformation with the real facts, especially when
the governor called the GOP estate tax plan
"fiscally irresponsible," saying it
"would drive another $130 million hole in the
budget"?
My answer: They should have made such an educational
effort. Had they put the facts before the voting
public, this whole mess would not have been dropped
in the Governor's lap. Yet these facts were as
readily available to every senate Democrat as they
were to me.
Moreover, what shoulda, coulda been only matters if
the GOP plan -- which would have given the 13
wealthiest Virginia families filing an estate tax
return in FY 2002 an average tax break of $2.3
million -- actually becomes law. To me, it is
inconceivable that Governor Warner and the senate
Democrats will allow this to happen.
This money is needed to make our schools more
accountable, improve police protection, and to
prevent “the people who are going to get hurt the
most by the budget cuts — the poor” from being
left to twist in the wind, to quote a Richmond
Free Press editorial of January 23-25.
If you look at state documents, you find that just
97 families -- those with taxable estates above $3.5
million -- would have received the majority of the
"130 million" the Governor was referring
to in his quote above.
Who are these 10 Democrats that have been so
"irresponsible" as the governor points
out? They are Chuck Colgan, Edward Houck, Janet
Howell, Benjamin Lambert, Louise Lucas, Henry Marsh,
Henry Maxwell, "Toddy" Puller, Roscoe
Reynolds, and Democratic Senate Minority Leader
Richard Saslaw.
Think of it: A majority of the Democratic Black
Caucus in the Senate, a majority of the Northern
Virginia delegation, and a majority of the senior
Democratic Senate leadership all voting for
something that even the Gilded Age contemporaries of
the Robber Barons knew was wrong. (The federal
estate tax was first proposed by Republican
President Teddy Roosevelt and adopted under
Virginian Woodrow Wilson.)
Clearly, the super-rich Mars candy family of
Northern Virginia -- whom Bill Gates' father said
was among the major backers of the effort to repeal
state estate taxes, including Virginia's -- is about
to pull a huge political coup in Virginia.
How did Governor Warner, and the state Democratic
Party get into this situation?
I have not heard a satisfactory explanation. As they
say, "stuff happens" and I can only assume
this one -- admittedly a big one -- slipped through
the cracks. Or perhaps, again, a bad assumption was
made about what people knew and didn't know.
The
fact is that the biggest fortunes typically consist
of unrealized capital gains. The average working
American - you and I - accumulates most of our
assets by virtue of salary, small business profits,
or taxable capital gains, meaning we keep only
what's left after the payment of federal, state and
local incomes taxes. However, unrealized capital
gains, by definition, has never been subjected to
taxation.
Accordingly, without an estate tax, the Mars family,
estimated by Virginia Business magazine to be worth
$11 billion, and a handful of mega-estates in
Virginia will pay no taxes on their unrealized
capital gains. By contrast, the average worker in
the districts represented by these 10 Democratic
senators will have paid tens of thousands of dollars
in income taxes to accumulate their small nest eggs.
That is why having an inheritance tax in these
circumstances has always been supported as very fair
by commentators on all sides of the political
spectrum.
What should Governor Warner do now? Clearly, there
is no chance that former Democratic governors Robb,
Baliles or Wilder would have permitted such a plan
to be enacted. If Gov. Warner were willing to
exercise the veto, this GOP Estate Tax plan would be
DOA if only seven of those 10 Democratic senators
agreed to side with him.
Can the senators be pressured to reverse their
position and support Gov. Warner if he decides to
veto the GOP Estate Tax bill?
Right now, the Governor's position is not known,
other than a statement that he would not sign the
bill in its "current form." This suggests
he will try to amend it. But if these amendments are
rejected by a majority of either house, then he will
be left with only two choices: veto it or allow it
to become law.
In that regard, he is under immense political
pressure on account of his own financial situation.
Unfortunately, most people are very cynical when it
comes to money, and especially towards those with
huge amounts of money. This attitude is conveyed in
the famous quote in the days of the muckrakers:
"Behind every large fortune is a great
crime" or something to that effect.
With a net worth estimated by Virginia Business to
be $200 million, the governor, or more accurately
his heirs, stand to gain enormously from the repeal
of Virginia's estate tax. Given peoples' cynicism on
matters of money, his every action, and non-action
in regards to this measure, both as to what he has
already done or not done and the same going forward,
will be highly debated, something his advisors
should have anticipated.
Accordingly, I would strongly advise him -- as I
have done before -- to veto the bill, and organize a
major statewide information campaign to educate the
public, and his own senators, on the facts of the
situation. Ideally, this information campaign should
begin at once to lay the ground work for the veto.
To win a veto fight, the Governor will need to get
seven Democratic Senators -- I am assuming no
Republicans will change their vote -- to switch
their positions.
I believe this can be done.
First of all, it is inconceivable to me that these
senators have done their homework on the issue.
Secondly, the administration can easily counter the
misinformation and disinformation being pedaled by
the Republicans.
Thirdly, if the state Democratic Party wants to be
credible when they blame "Deficit" Jim
Gilmore for busting the budget and leaving
education, mental health and the poor to twist in
the wind, then surely Dems have to go all-out to
support a Warner veto of the GOP Estate Tax bill.
Like it or not, Governor Warner has been presented
with one of those defining moments.
This is a veto battle he can win and must win -- or
Virginia Democrats risk being seen as having lost
their political soul.
--
February 10, 2003
(c) Copyright. All rights reserved. Paul Goldman.
2003.
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