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Death by a Thousand Cuts

Death by a Thousand Cuts: The Fight over Taxing Inherited Wealth

Michael J. Graetz
Ian Shapiro
Copyright Date: 2005
Pages: 392
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  • Book Info
    Death by a Thousand Cuts
    Book Description:

    This fast-paced book by Yale professors Michael Graetz and Ian Shapiro unravels the following mystery: How is it that the estate tax, which has been on the books continuously since 1916 and is paid by only the wealthiest two percent of Americans, was repealed in 2001 with broad bipartisan support? The mystery is all the more striking because the repeal was not done in the dead of night, like a congressional pay raise. It came at the end of a multiyear populist campaign launched by a few individuals, and was heralded by its supporters as a signal achievement for Americans who are committed to the work ethic and the American Dream.

    Graetz and Shapiro conducted wide-ranging interviews with the relevant players: members of congress, senators, staffers from the key committees and the Bush White House, civil servants, think tank and interest group representatives, and many others. The result is a unique portrait of American politics as viewed through the lens of the death tax repeal saga. Graetz and Shapiro brilliantly illuminate the repeal campaign's many fascinating and unexpected turns--particularly the odd end result whereby the repeal is slated to self-destruct a decade after its passage. They show that the stakes in this fight are exceedingly high; the very survival of the long standing American consensus on progressive taxation is being threatened.

    Graetz and Shapiro's rich narrative reads more like a political drama than a conventional work of scholarship. Yet every page is suffused by their intimate knowledge of the history of the tax code, the transformation of American conservatism over the past three decades, and the wider political implications of battles over tax policy.

    eISBN: 978-1-4008-3918-6
    Subjects: Political Science, Business, Law

Table of Contents

  1. Front Matter
    (pp. [i]-[vi])
  2. Table of Contents
    (pp. [vii]-[viii])
  3. An American Story

    • 1 A Political Mystery
      (pp. 3-11)

      At the heart of this story lies a mystery about politics and persuasion. For almost a century, the estate tax affected only the richest 1 or 2 percent of citizens, encouraged charity, and placed no burden on the vast majority of Americans. This tax was grounded on a core American value: that all people should have an equal opportunity to pursue their economic dreams. Yet it became so despised and generally unpopular that a wide majority of Congress voted to repeal it. How, in a democratic society, did this happen? And what does its demise signal about our future?


    • 2 Genesis of the Repeal Coalition
      (pp. 12-23)

      If politics is the art of the possible, political creativity involves seeing what is possible when others miss or it—or dismiss it. How the repeal proponents navigated the waters of the possible will concern us later. First we attend to the creative pioneers—those who believed the estate tax could be repealed and began working toward that goal as far back as the late 1980s. Why would anyone who could see straight imagine that a tax paid by only 2 percent of the wealthiest Americans could be abolished? When the repeal movement began, the Democrats had been firmly in...

    • 3 Squall or Sea Change?
      (pp. 24-31)

      The Republicans swept both Houses of Congress in November 1994 for the first time in a generation. Dan Balz described them in theWashington Postas riding a “tidal wave of voter discontent.” R. W. Apple in theNew York Timesput it down to voter dissatisfaction “with President Clinton, with liberalism, with the Democratic Party, and with Washington in general.” These assessments were accurate, but they left unanswered the larger question: Did this election mean an end to the Democratic congressional dynasty that had been entrenched in Washington since the Eisenhower administration?

      Certainly many Democrats behaved as if 1994...

    • 4 An Opportunity Missed
      (pp. 32-40)

      If you wish to conquer, first divide. Few political issues better demonstrate the power of this approach than the battle over taxing American inheritances. And yet the opposition to repeal of the death tax, diffuse and disorganized, missed its golden opportunity to do just this. By the mid-1990s, groups such as the Family Business Estate Tax Coalition and their allies had managed to bring together an unlikely combination of super-wealthy families and working farmers, scions who had inherited all their money and car dealers who had worked for every penny. If the interests of the more numerous but less wealthy...

    • 5 An Advocate for the Working Rich
      (pp. 41-49)

      As she sits in her wood-paneled corner office of the Longworth congressional building, dressed in her elegant, gray-flecked skirt-suit, its jacket adorned by a giant red carnation, Representative Jennifer Dunn barely resembles the soccer mom selected by the Republican Party to respond to President Clinton’s State of the Union address in January 1999—just after the start of his impeachment trial. Her hair is perfectly coiffed and her ring finger is weighed down by a six-carat sapphire mounted on a thick gold band. It is a gift from her fiancé, the wealthy businessman Keith Thomson, who has recently proposed “at...

    • 6 Stories from the Grasstops
      (pp. 50-61)

      An old courtroom adage urges, If the law is on your side, argue the law; if not, argue the facts; if neither helps, sow confusion. On Capitol Hill, the wise advice is to come armed with a good story. The most effective storyteller is someone the senator or representative knows, a good friend or an old political compatriot. Congress frequently moves the law in response to anecdotes. Washington insiders know this well.

      Bill Beach is one such insider, and this Heritage Foundation analyst was thinking strategically when he published “Death Tax Devastation: Horror Stories from Middle-Class America.” It was August...

    • 7 Changing the Face for Repeal
      (pp. 62-73)

      On the morning of February 1, 1995, just nine months before David Pankonin’s story would appear in theWall Street Journal,in the cavernous hearing room of the House Ways and Means Committee an elegant, 83-year-old African American tree farmer from Montrose, Mississippi, moved into the witness chair. Chester Thigpen was a grandchild of slaves. He had come to Washington to urge these lawmakers to exempt most family businesses from the estate tax. Surrounded by large portraits of former Ways and Means Committee chairmen, all white, Thigpen looked up from the witness table to the dais where the legislators sat....

    • 8 Talking the Talk
      (pp. 74-84)

      When Abraham Lincoln was a young Illinois legislator, he unsuccessfully urged his state to impose a graduated tax on real property. Such a levy would be “equitable within itself,” he argued, because it would burden the “wealthy few”—who, he emphasized, “are not sufficiently numerous to carry the elections.” More than a century and a half later, congressional Democrats opposed to estate tax repeal regarded Lincoln’s point about the limited political power of the wealthy few as adequate protection against the forces for repeal. To repeal advocates, however, this point was irrelevant. They knew full well that the wealthy still...

    • 9 Exploiting the Think Tank Gap
      (pp. 85-98)

      Our tale thus far has emphasized the crusaders who led the charge against the death tax and the grasstop constituents who most effectively sold the case for repeal to their legislators. But working alongside these individuals, a powerful group of policy-oriented research organizations played a crucial supporting role in our drama. Washington think tanks have become major players in the political game. Indeed, death tax repeal might never have made it onto the political agenda but for the revolutionary transformation of think tanks since the early 1970s.

      A handful of these Washington think tanks and research groups had existed since...

    • 10 Disorganized Democrats
      (pp. 99-106)

      The conservative think tanks’ influence on congressional Republicans is easy enough to perceive. It is more difficult to calibrate just how much the lack of opposing liberal policy groups disarmed the Democrats before the fight was even joined. One thing, however, is clear. Democrats in Washington at first ignored the repeal movement and eventually flailed against it with remarkably little effect. The House and Senate Democratic leaderships made no secret of their hostility to estate tax repeal, yet they could not prevent substantial defections from their own ranks when the time came to vote in the final Clinton years and...

    • 11 Pushing against an Open Door
      (pp. 107-117)

      As we have seen, Republican effectiveness on the Hill was partly due to the party’s superior organization, leadership, and focus, but it also stemmed from the relentless pressure exerted by pro-repeal forces off the Hill—the think tanks, the grasstops, and the lobbyists who constituted or worked with the coalition. Coordinating with one another, and with House and Senate leaders, these groups managed to get repeal onto the agenda when few people took it seriously and then keep it there. They built momentum, sustained it through critical votes, and ensured that repeal remained a significant part of President Bush’s tax...

    • 12 The Running Room of Public Opinion
      (pp. 118-130)

      Opinion among political elites, lobbyists, think-tank researchers, and other inside-the-beltway types is one thing; what middle America thinks is another. Unfolding the mystery of estate tax repeal demands an answer to the question: Why would the public broadly support repealing a tax paid by only 2 percent of America’s wealthiest taxpayers? Indeed, no repeal effort ever got off the ground during the Ronald Reagan and George H. W. Bush administrations largely because most Washington insiders assumed that abolishing the estate tax was politically impossible. According to the orthodox wisdom, the vast majority of Americans would oppose repealing a steeply progressive...

  4. The Battle for Passage

    • 13 The Missing Link
      (pp. 133-142)

      For both advocates and opponents of estate tax repeal, the 2000 presidential election was a make-or-break contest. In the 1996 campaign, Republican running mates Robert Dole and Jack Kemp had proposed changes that by 2000 seemed modest: to “increase the estate tax exemption from $600,000 to $1.6 million and eventually eliminate the estate tax on family-owned businesses, farms and ranches.” But in the intervening four years, the forces for repeal had picked up momentum, especially following the QFOBI debacle. After the favorable votes in Congress in 1999 to repeal the tax, it became clear that the main ingredient missing was...

    • 14 Building a Strong Offense
      (pp. 143-153)

      George W. Bush’s ascendance to the presidency in January 2001 certainly enhanced the prospects of repeal, but neither his election nor the hard work of the Family Business Estate Tax Coalition and its allies, like Jennifer Dunn, would be sufficient to put estate tax repeal into the tax code. More than a little help was needed from others. A powerful economist, a college dropout, an Iowa hog farmer, a California political scientist, a high school wrestling coach, a Montana lawyer who prefers his Harley-Davidson to his car, America’s first African American billionaire, and a Louisiana party animal who had become...

    • 15 The Birth of a New Coalition
      (pp. 154-167)

      When President Bush hit the road in 2001 touting all the ways he believed his proposed tax cuts would help the American people, one element was conspicuously missing from his list: the plan contained no tax relief for corporations. The reason is simple enough. The administration’s proposal came straight from the presidential campaign, and urging corporate tax cuts does not help anyone—particularly Republicans—garner votes in a national political election. Indeed, opposition to corporate tax breaks is the one place in American politics where the “class warfare” argument seems to work consistently. So the Bush plan contained no reduction...

    • 16 Billionaires Battle
      (pp. 168-177)

      By the time George Bush became president in January 2001, Democrats in Congress were not doing well in opposing estate tax repeal. Due to the inattention and ineptitude of the opposition forces, they were not getting much help either. Organized labor took a pass. Charities were silent. The life insurance industry’s efforts were half-hearted and ineffective. Liberal Washington think tanks were outmanned. On Capitol Hill you cannot beat people with shadows.

      And repeal proponents had plenty of people working to kill the death tax—wealthy, powerful, successful, well-organized people invoking the “American Dream.” The Tax Relief Coalition and the Family...

    • 17 Paint-by-Numbers Lawmaking
      (pp. 178-193)

      The president proposes; Congress disposes. A hackneyed truth, but it leaves a crucial question unanswered: How does Congress decide what to do in response to presidential proposals? The 2001 tax legislation confirms Bismarck’s adage that no one should ever see how law or sausages are made. But we cannot avert our eyes here.

      Since the late 1980s, Congress has played paint-by-numbers tax lawmaking. The game requires Congress to fit tax legislation into a fixed revenue target for the forthcoming budget period. The budget window used to be five years, but it was child’s play simply to postpone large revenue losses...

    • 18 The Final Four
      (pp. 194-205)

      After nearly a decade of planning and campaigning by repeal advocates, the fate of the estate tax would ultimately come to rest with four men deliberating behind closed doors on Capitol Hill. The repeal movement had succeeded in bringing the issue to the fore and had then exerted all the political pressure it could muster. But in the end, those members of Congress most closely associated with the estate tax debate, such as Jennifer Dunn, would not be in the room. The coalitions, the lobbyists, and even the legislators would just have to await the outcome of what is, in...

    • 19 Winners, Losers, and Uncertainty
      (pp. 206-218)

      Shortly after the 2001 tax act was signed, Charles Grassley proclaimed that this tax bill “is a victory for Republicans, it is a victory for Democrats, and it is a victory for the president, but most of all, it is a victory for the American people.” But not everyone won. And even for some “winners,” victory rang quite hollow. For those who had worked long and hard for estate tax repeal, the result was ambiguous at best. Repeal was passed into law on paper, but with the actual elimination of the tax delayed by ten years, the reality remained very...

  5. Lessons Learned and Missed

    • 20 Stories Trump Science
      (pp. 221-238)

      There once was a newly elected Republican living in the White House. After a wave of scandals at the end of the previous administration, the American people hoped that this president would restore propriety and honesty to the executive branch. He had an ambitious domestic agenda, including a reduction in income taxes, and he had several advantages as he set out to get his priorities enacted into law. For one thing, the Republicans controlled both houses of Congress. For another, the federal budget was enjoying large surpluses, making proposals to reduce federal tax revenues widely popular. In these propitious circumstances,...

    • 21 Money, Money, Money
      (pp. 239-252)

      Repeal advocates had many advantages in 2001. They had changed the terms of the debate from self-interest to basic fairness. They had woven a compelling narrative, invoking the American Dream, to make their case. In the White House they had a committed president who, unlike Calvin Coolidge, never blinked in his commitment to repeal. On Capitol Hill they also had an effective advocate: the elegant and eloquent Jennifer Dunn, a soccer mom’s soccer mom, a business woman’s business woman. They enjoyed complete Republican control of the House of Representatives and had gained willing Democratic collaborators such as John Breaux and...

    • 22 Morals of the Mysteries
      (pp. 253-265)

      Our tale began with three mysteries: Why did such broad, diverse swaths of Congress and the voting public converge to oppose a tax that only a tiny slice of the wealthiest Americans actually pay? How did the organized repeal coalitions withstand the dual pressures from their own conflicting interests and the outside forces that sought to tear them asunder? Finally, why didn’t the inclusion of death tax repeal in President Bush’s already mammoth 2001 tax cut legislation spur more opposition—and why was the opposition that did materialize so stunningly ineffective? The preceding pages have unraveled the threads of these...

    • 23 Another Storm Gathering
      (pp. 266-278)

      It is tempting to view repeal of the estate tax in 2001 as an isolated political event—a perfect storm. A well-organized, totally focused group had gathered into political coalitions to fight for repeal. Its most effective and visible members were small business owners and farmers—productive, industrious, successful Americans who had aroused the sympathy of members of Congress and the American people, priming public opinion to encourage repeal of the “death tax.” By January 2001, the winds were headed in their direction. A president committed to their cause sat in the White House. Projected surpluses seemingly gave the federal...

  6. Epilogue
    (pp. 279-288)

    Five years had passed since the repeal forces had secured legislation eliminating the “death tax” they so despised. But the law remained stuck in the purgatory fashioned by the 2001 legislation. Repeal was still scheduled to take effect in 2010, but unless Congress could be persuaded to take action, in 2011 the tax would re-emerge—and with a 55 percent top rate and only a $1 million exemption.

    To be sure, everyone agreed that this was highly unlikely. Even liberal Democrats were now supporting an exemption of at least $3.5 million and a top rate of 45 percent. Many had...

    (pp. 289-298)
    (pp. 299-362)
    (pp. 363-364)
  10. INDEX
    (pp. 365-378)