TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, August 14, 2012

McCaffery: The Dirty Little Secret of (Estate) Tax Reform

Edward J. McCaffery (USC), The Dirty Little Secret of (Estate) Tax Reform, 65 Stan. L. Rev. Online 21 (Aug. 13, 2012):

Spoiler alert! The dirty little secret of estate tax reform is the same as the dirty little secret about many things that transpire, or fail to transpire, inside the Beltway: it’s all about money. But no, it is not quite what you think. The secret is not that special interests give boatloads of money to politicians. Of course they do. That may well be dirty, but it is hardly secret. The dirty little secret I come to lay bare is that Congress likes it this way. Congress wants there to be special interests, small groups with high stakes in what it does or does not do. These are necessary conditions for Congress to get what it needs: money, for itself and its campaigns. Although the near certainty of getting re-elected could point to the contrary, elected officials raise more money than ever. Tax reform in general, and estate tax repeal or reform in particular, illustrate the point: Congress has shown an appetite for keeping the issue of estate tax repeal alive through a never-ending series of brinksmanship votes; it never does anything fundamental or, for that matter, principled, but rakes in cash year in and year out for just considering the matter. ...

On the estate tax, then, it is easy to predict what will happen: not much. We will not see a return to year 2000 levels, and we will not see repeal. The one cautionary note I must add is that, going back to the game, something has to happen sometime, or the parties paying Congress and lobbyists will wise up and stop paying to play. But that has not kicked in yet, decades into the story, and it may not kick in until more people read this Essay, and start to watch the watchdogs. Fat chance of that happening, too, I suppose. In the meantime, without a meaningful wealth-transfer tax (the gift and estate taxes raise a very minimal amount of revenue and may even lose money when the income tax savings of standard estate-planning techniques, such as charitable and life insurance trusts, are taken into account), one fundamental insight of the special interest model continue to obtain. Big groups with small stakes—that is, most of us—continue to pay through increasingly burdensome middle class taxes for most of what government does, including stringing along those “lucky” enough to be members of a special interest group. It’s a variant of a very old story, and it is time to stop keeping it secret.

Scholarship, Tax | Permalink

TrackBack URL for this entry:

Listed below are links to weblogs that reference McCaffery: The Dirty Little Secret of (Estate) Tax Reform:


The "Research and Development Tax Credit" is another one of those line items which is always extended another year or two, but never permanently enacted.

Back in the 1990's, I heard a congressional staffer refer to the R&D tax credit as a "milker". I asked what that meant, and he (somewhat sheepishly) described it as a bill which could reliably be expected to produce campaign contributions, year after year. If there is a term to describe the category containing such things, presumably there are other individual examples. (I didn't ask.)

Posted by: jack | Aug 20, 2012 10:32:59 AM

Sorry to have to break this to Prof. McCaffery, but the entire architecture of Federal regulation and taxation, and in most of the States as well I daresay, is to give monied interests a need to come and make deals with the politicians. Why do we have high tax rates with many deductions, credits, special exclusions, etc, instead of a revenue-neutral low rate with few of those and much lower compliance and regulatory costs? Because the poliicians like it that way, they sell favors and then the base rate has to go up to recoup the revenue. Ditto just about every regulation that has waiver provisions (whatever called), or is very carefully drawn to include certain things and exclude others where there is no real difference.

In Illinois we call those "fetcher bills," because they fetch the lobbyists. Other States have other colloquialisms, but it's darn near universal.

It's all corrupt--not illegal, but corrupt. We elect and re-elect them, we have mostly ourselves to bame if we don't like it.

Posted by: Marty | Aug 20, 2012 10:38:51 AM

Is this really a new discovery?

I noticed it within the first 15 minutes of dealing with elected officials.

Posted by: Andy Freeman | Aug 20, 2012 12:06:04 PM