Rebel With a Cause

Paul Goldman

The Moment of Truth

Governor Warner, the state Democratic Party and 10 Democratic senators face a defining moment once the facts get out about the GOP plan to repeal Virginia's estate tax.


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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Paul Goldman, the Rebel With a Cause, was chief political strategist for the past two winning Democratic governors in Virginia and was credited with leading a "revolution in American politics" by The New York Times for his role in breaking America's 300-year-old color barrier in national politics.